Energy: Nuclear Fuel Bank
	 — 
	Question

Lord Jenkin of Roding: To ask Her Majesty's Government what progress has been made in the past 12 months on the proposal to set up an international nuclear fuel bank controlled by the International Atomic Energy Agency.

Lord Hunt of Kings Heath: My Lords, the EU has announced up to €25 million of support towards a nuclear fuel bank under International Atomic Energy Agency (IAEA) control, as proposed by the US-based nuclear threat initiative. In addition, details of the UK-led "nuclear fuel assurance", formerly known as an enrichment bond, are being finalised.

Lord Jenkin of Roding: My Lords, while it is obviously very welcome that the European Union should have recognised the huge priority that needs to be given to this whole process during the nuclear renaissance and to contribute to the non-proliferation of nuclear weapons, can the noble Lord go a little further and tell us which of the several different proposals on the table is now the front runner? Does the UK still prefer what he called the nuclear fuel assurance proposal, formerly the enrichment bond, and, if so, what are its prospects of success?

Lord Hunt of Kings Heath: My Lords, 12 proposals have been put forward. My understanding is that a number of those proposals will fall to be considered by the IAEA over the next few months and certainly, we hope, by the end of the year. I endorse the noble Lord's comments about the urgency of this matter. As far as I understand, the UK's proposal is complementary to the NTI proposal. Clearly, other proposals also have to be considered, but we support the NTI proposal as well as continuing to work on the UK's proposal.

Lord Hannay of Chiswick: My Lords, does the Minister agree that the priority must be to reduce the number of these proposals as the objective being pursued by all those who have put forward proposals is pretty well common? We surely must winnow down these proposals. It is now five years since the Secretary-General of the UN put forward this proposal on the basis of a high-level panel and the 2010 nuclear proliferation review conference is coming down the track. There is not infinite time for it. His noble friend said in this House last week that he was less pessimistic about the 2010 review conference. This is one of the jewels that will have to be in that crown if it is to be a success.

Lord Hunt of Kings Heath: My Lords, I do not disagree with the noble Lord. It is absolutely right that the 12 proposals now on the table should be considered as quickly as possible and that at the end of the day arrangements are in place under which states that wish to develop nuclear power peacefully are enabled to do so but without the proliferation of enrichment facilities. We are at one with noble Lords in our wish to see this progress. I am hopeful that discussions over the next few months will indeed enable that to take place.

Baroness Williams of Crosby: My Lords, does the Minister agree that, in the light of the recent decision by the United States in its agreement with the UAE for the importing of uranium for the purposes of civil nuclear power rather than enrichment by the UAE, we may well be on the way to a new and very exciting set of proposals for dealing with nuclear proliferation? To that, I add the recent American indication that the new Administration would support a fissile material cut-off treaty. Does he agree that these two together—the nuclear fuel bank and the fissile material cut-off treaty—could bring us very close to an answer to the horrors of proliferation and nuclear weapons?

Lord Hunt of Kings Heath: My Lords, I agree with the noble Baroness. I take this opportunity to pay tribute to her for her work with the NTI, because clearly the leadership that is being shown will be very important indeed to preventing the proliferation that she referred to.

Lord Bates: My Lords, does the Minister recognise that any storage of nuclear-enriched uranium will pose significant security and diplomatic issues? What thoughts have Her Majesty's Government on where such a store should be located?

Lord Hunt of Kings Heath: My Lords, on the question of storage, seeking to discourage the development of enrichment facilities so that it is possible for countries that wish to develop nuclear power for energy purposes to be able to import and have the assurance that there will be a continuing supply is a very important part of dealing with this problem. As for storage in this country, the noble Lord will know that the Government have been proactive in encouraging development of potential new storage facilities. Expressions of interest in relation to the storage proposals that have been made are being received at the moment. We are confident that we will come to an effective solution.

Lord Teverson: My Lords, the idea of a nuclear fuel bank is primarily around non-proliferation. The United Kingdom Government have been an important part of the EU3 its in negotiations with Iran. Has Iran responded positively to the idea, and do the Government intend to take it forward within that context?

Lord Hunt of Kings Heath: Yes, my Lords, we are committed to what is described as the EU3+3 dual track strategy. Iran has a very stark choice; increasingly tough sanctions to persuade the country to change its mind, or dialogue to lead to full negotiations if the Iranians suspend their enrichment-related activities.

Lord Stoddart of Swindon: My Lords, further to the previous question, as Iran is a member of the nuclear non-proliferation treaty, does that mean that Israel, which is not a member, contributes to this sort of bank?

Lord Hunt of Kings Heath: My Lords, the UK has urged Israel to accede to the nuclear non-proliferation treaty as a non-nuclear weapons state and to sign up to a full scope safeguards agreement with the International Atomic Energy Agency.

Iran: Human Rights
	 — 
	Question

Lord Corbett of Castle Vale: To ask Her Majesty's Government what recent representations they have made to the Government of Iran concerning human rights.

Lord Malloch-Brown: My Lords, we made over 40 representations and statements in 2008, bilaterally and through the EU. The most recent representation took place on 31 December, when the French, acting as presidency of the EU, summoned the Iranian ambassador in Paris to convey our serious concern about the recent treatment of Dr Shirin Ebadi. Other recent EU declarations have focused on reports of mass executions, stonings, the persecution of human rights defenders and other key human rights concerns.

Lord Corbett of Castle Vale: My Lords, I thank the Minister for the continuing pressure that the Government are putting on the mullahs over their continuing human rights abuses, and particularly for the work that was done at the United Nations on the report of the Commission on Human Rights at the back end of last year. Is he aware that 1,000 people, including children, have been hanged since August 2005 and 44 in the past month alone? Brutal punishments also include stonings to death, limb amputation without anaesthetics and eye-gouging. Is it not time that the UN added sanctions on these human rights issues to those already in place over other matters?

Lord Malloch-Brown: My Lords, my noble friend catalogues all too grimly and accurately the horrific human rights situation in the country. Iran executes the second highest number of people in the world— 320 last year. It executed kids—minors—and, despite an apparent ban in 2007, stonings appear to have resumed recently. We are aware of the difficulties that we all have in finding a coherent way of dealing with Iran—the previous Question addressed that in some ways—but there is no doubt that human rights must be part of our dialogue.

Baroness Knight of Collingtree: My Lords, I assure the Minister that there is very great interest in both Houses of Parliament on this matter and very strong support for what the noble Lord, Lord Corbett, said. Will he consider following the example of the French ambassador and call in our representative from Iran to talk to him about the widespread concern on this matter?

Lord Malloch-Brown: My Lords, I will certainly make sure that our envoy is fully aware of the concerns of this House and the other place. On the recent visit here of the Iranian Deputy Foreign Minister, my colleague Bill Rammell raised these very issues. We made sure that Iran is in no doubt about the concerns of all of us.

Baroness Uddin: My Lords, perhaps I may express my dismay at the treatment of Shirin Ebadi and the catalogue of human rights violations that my noble friend Lord Corbett listed. However, does the Minister agree that it is better to ensure that we continue the dialogue? Does he believe that the new incumbent President Obama will make some difference to the dialogue that may take place in the near future?

Lord Malloch-Brown: My Lords, my noble friend touches on a real truth, which is that the dialogue with Iran has been reduced to this vital issue of nuclear weapons and that Iran is quite dismissive of our efforts to raise other issues. We need to arrive at a point where the dialogue covers a broader number of subjects and from which we can engage with Iran effectively on these appalling atrocities.

Baroness Falkner of Margravine: My Lords, does the Minister agree that, 30 years since the Iranian revolution, we in the West have tried all sorts—demarches, engagement and disengagement and have put just about everything on the table? Rather than using megaphone diplomacy, particularly at this time of flux in Iran, which is due to the forthcoming elections, does he agree that sometimes the sotto voce approach would perhaps gain more? I can only endorse the view—does he agree?—that dialogue is the way forward and that we should use other, more subtle means, rather than backing Iranian forces that are based outside that country: those here in the UK and in the US.

Lord Malloch-Brown: My Lords, I thought that the noble Baroness was subtle until the last part of her question. Many human rights defenders in Iran ask us to support them when they get into trouble, but not to pre-emptively speak up for them before that, because that, although it does not literally become a kiss of death, nevertheless means that they become targeted, risk imprisonment and so on.

Lord Howell of Guildford: My Lords, as regards a coherent way of dealing with Iran in the coming phase of international affairs, is it not right to say that although we will probably have to engage with this revolting regime on various crucial strategic matters, we should never for a moment forget the kind of list that the noble Lord, Lord Corbett, reminded us of, which by all standards—even mediaeval standards—is fairly disgusting? We should use every opportunity, while we have to engage and discuss nuclear issues and other things, to remind Iran and the world that these are completely unacceptable standards and that this regime will make itself a pariah of the world, until and unless it improves its human rights record in this area.

Lord Malloch-Brown: My Lords, I think that the noble Lord is correct. That is why engaging the regime on an array of issues that go broader than just the nuclear is not, as some have feared, a strategy of appeasement but a recognition that this regime, in many facets of its behaviour, exhibits at its core that it is an authoritarian regime which brooks no criticism and seeks a military power in order for it to dominate its region. We have to put all these issues on the table and deal with it in a tough and realistic but pragmatic way.

Lord Anderson of Swansea: My Lords—

Baroness Sharples: My Lords—

Lord Hunt of Kings Heath: My Lords, it is this side's turn.

Lord Anderson of Swansea: My Lords, historically, Persia/Iran has a proud record in the field of education and tolerance, even from the time of Cyrus, yet we know that the Baha'i community is prevented from attending universities and, now, apparently even from attending schools. That is contrary to the obligations incurred by the Islamic republic under the Universal Declaration of Human Rights and, indeed, under Article 33 of the International Covenant on Economic, Cultural and Social Rights. Whether it be sotto voce or through the United Nations agencies, what are we doing to remind Iran of its international obligations in respect of the Baha'i?

Lord Malloch-Brown: My Lords, I assure my noble friend that we and the EU have raised these matters regarding the Baha'i, as well as others. We are very concerned about the seven Baha'i leaders currently under arrest—a matter that has already been raised in this House. No one in Iran can be left in any doubt about our concern for these individuals and about the persecution of their religion.

Economy: Exchange Rate
	 — 
	Question

Lord Barnett: To ask Her Majesty's Government what consideration they have given to whether a decline in the sterling exchange rate is good or bad for economic recovery.

Lord Myners: My Lords, the Pre-Budget Report 2008 states:
	"Export volumes growth in 2009 is forecast to be 0 to ½ per cent, but as growth in the UK's export markets recovers and the effects from sterling gradually encourage more companies to pursue export opportunities, growth is forecast to pick up in 2010 and further in 2011".
	The Pre-Budget Report also mentions that,
	"the pass-through from sterling's depreciation will exert upward pressure",
	on prices, but it states that inflation is expected to return to target in 2011 as other factors exert downward pressure.

Lord Barnett: My Lords, I think that I thank my noble friend; I am not sure that that answers my Question. Does he accept that the depreciation of the currency is positively helpful as a step towards economic recovery in the sense that it will help to get us out of the recession rather quicker than would have been the case without that correction of the currency? Can he assure us that he will leave the currency to find its own level and not seek to manage it in some strange way that I am not sure about?

Lord Myners: My Lords, the adjustment that we have seen in the value of sterling should be helpful to British exporters, including, in particular, the very large manufacturing sector, to which my noble friend Lady Whitaker referred last week. It should also mean that opportunities emerge for domestic manufacturers to supply domestic demand which has previously been met by production from overseas. I assure my noble friend that the Government's monetary policy will continue to pursue the framework that has successfully been in place since 1987—namely, to target inflation and not an exchange rate.

Lord Tebbit: My Lords, I want to ask the Minister again. Underneath that mass of verbiage, was the Answer to the noble Lord's Question, "Yes, it's good" or "Yes, it's bad"? Which was it?

Lord Myners: My Lords, within the verbiage to which the noble Lord, Lord Tebbit, refers, I have answered the questions with as much care as I can. I certainly rest assured that, although he accuses me of verbiage, he will not be accusing me of laziness—a description that he has applied to a new member of his Front-Bench team in the other House.
	The benefit of a lower exchange rate is enhanced export competitiveness and an ability to provide more demand for domestic production than from overseas sources. That is what I said earlier; I repeat it.

Lord Newby: My Lords, the noble Lord said that the Pre-Budget Report assumed that exports would start growing in the second half of the year. What is the Government's current estimate as to when the economy as a whole will start growing again?

Lord Myners: My Lords, the Government are required under the Industry Act to place economic forecasts before Parliament on two occasions in a year and no doubt my friend the Chancellor of the Exchequer will do so at the time of the Budget.

Lord Higgins: My Lords, would the noble Lord agree that if we were members of the European single currency it would not have been possible for us to cut interest rates in the way which the Government have, and that that would not have been likely to assist economic recovery? As far as the exchange rate is concerned, would he agree that the effect depends on the elasticity of demand for exports and imports? Have the Government made an up-to-date estimate of these?

Lord Myners: My Lords, I agree with the observation of the noble Lord, Lord Higgins, that we are free to set our own interest rates. As a member of the single currency, we would be bound to the single-currency interest rates. On his second question, the Government's forecasts take account of elasticities of demand and supply in terms of their effect on the trade account.

Lord Peston: My Lords, is my noble friend aware that in economics we rarely have a laboratory experiment with respect to the exchange rate? The exchange rate plunged in 1992 when we left the ERM. For four years from then our share of world exports rose continuously. Therefore the answer to my noble friend's Question is very simple and straightforward: it is good and it is not bad. The more interesting question is: what is the likely path of the exchange rate this year? If noble Lords opposite want some free financial advice and fancy a punt, my guess is that the forward purchase of sterling over the coming year will be highly profitable.

Lord Myners: My Lords, I am not sure there was a question there. We are all reassured, however, that we can rely upon the Peston family for advice.

Lord Cobbold: My Lords, does the Minister agree that devaluing sterling is short-changing our depositors and that competitive devaluations were a very damaging feature of the 1930s?

Lord Myners: My Lords, I do not think the market movement in sterling has an effect on the value of deposits. Many factors do, but that is not one within a domestic economy. Nor do I think that we are engaged in any way in a programme of competitive devaluations. Our exchange rate is set according to a free market.

Baroness Noakes: My Lords, when asked about the Government's exchange rate policy, the Exchequer Secretary said in another place last year:
	"By maintaining sound public finances and low inflation the Government contribute to exchange rate stability. This is consistent with their objective of a stable and competitive pound".—[Official Report, 21/4/08; col. 1674W.]
	We do not have sound public finances and we do not have a stable pound. What is the Government's policy now?

Lord Myners: My Lords, we are in a period of extraordinary economic challenge throughout the world. That is reflected in the likewise extraordinary volatility of exchange rates, stock markets and commodity prices. Our long-term commitment is to a competitive currency, which will be a consequence of our inflation targeting. Given that we have a stable inflation-rate target, that should be reflected over the long term in a stable exchange rate against other currencies. It is, however, a medium to long-term objective and not one that assures valuation on a minute-by-minute or day-by-day basis.

Passports
	 — 
	Question

Lord Marlesford: To ask Her Majesty's Government how they propose to monitor the use of passports of more than one country by British citizens.

Lord Brett: My Lords, as the UK Border Agency's e-borders system is rolled out, it will provide additional capability to reconcile electronically where an individual travels using different documents, so that passengers with dual nationality can be identified. The e-borders system analyses passenger data against watch lists prior to travel. Records of all passenger movements are retained, with a facility to search those data.

Lord Marlesford: My Lords, I thank the Minister for that Answer, but what steps will the Government take to ensure that, as of now, British immigration officials can know when somebody travelling on a UK passport also holds the passport of another country? Has he been made aware, as I have, of the serious concern that the lack of this information at present makes it extremely difficult to track those who are suspected of sympathising with or engaging in terrorism? Is it not astonishing that his noble friend Lord West had to answer my Question of 8 January, when I asked how many British passport holders also hold the passports of other countries, by saying that the "information ... is not available"?

Lord Brett: My Lords, it is not astonishing at all. It is not part of the nationality Act for us to have knowledge of passports held in different countries. What we have to do is protect our borders, which is precisely what the rolling-out of the e-borders programme is doing. That will be complete when the agency holds 100 per cent of the records available. It is not at that stage yet, but the programme is already successful. There was a four-year successful operational pilot, Project Semaphore, and contracts have been placed. We are now seeing the results: 30 million annualised passenger movements were processed by the end of the project in 2008 and by April this year the figure will be 100 million annualised passenger movements. By the end of 2010, coverage will be 95 per cent and, by 2014, it will be 100 per cent. That is the answer to the noble Lord's question. However, we are not resting on our laurels—

Noble Lords: Too long!

Lord Brett: My Lords, it is clear that your Lordships want this information. By the end of 2008, 78,114,231 passengers were screened, 33,000 alerts were made and 2,700 people were arrested. That is the information that I thought your Lordships were looking for.

Lord Dholakia: My Lords, is the Minister aware that, when a nationality is renounced, the passport has to be surrendered and a record is kept? Why is not possible in this day and age of biometric passports to ensure that records of dual nationality are kept? How can we have adequate immigration statistics if someone uses one passport for entry and a different one for exit?

Lord Brett: My Lords, the noble Lord raises an important question, which the whole e-borders project is an attempt—a successful one, I believe—to counter. Getting to the point of having the technology and 100 per cent coverage will take time, but we are moving in that direction. In the mean time, we have watch lists and the security agencies and others keep a close watch on suspected areas of concern, so the situation is not as simple as is suggested. We do not have complete coverage, but we will have in due course.

Baroness Gardner of Parkes: My Lords, when did these passport changes occur? My experience is as someone who holds only an Australian passport. I never applied for a British passport because the Home Office would automatically notify the Australian Government when someone made an application and the Australian Government would then revoke their Australian citizenship. That law has now changed, but I am too old to be bothered to apply—

Noble Lords: No!

Baroness Gardner of Parkes: My Lords, this country has been very good to me, so I cannot complain. At what stage did the law change? Previously, the Home Office was very aware of people having two passports.

Lord Brett: My Lords, I can only say to the noble Baroness that her presence in our country for many years has borne fruit and she certainly does not look old enough not to take advantage of changes to the passport system. The Australians of course require visas for the United Kingdom. The British Government do not have the same requirement that dual passport holders have to renounce one of their passports. The question of how this is being developed is not simply for the UK alone. An increasing number of countries are looking at this situation and are planning to introduce, or already have introduced, systems that capture and analyse passenger data. Those include the United States, as most of us know, Canada, Australia, Japan, Korea, India and Cuba. Your Lordships may guess the odd one out.

Lord Stewartby: My Lords, the Minister gave quite a long Answer to the Question, but I understood from what he said that he was justifying the present situation on the basis of it being compatible with the British Nationality Act 1981. A lot has changed since the early 1980s, especially the need to be vigilant against links with terrorists. Does it remain a matter of unconcern to Her Majesty's Government that we do not have the information for which my noble friend Lord Marlesford asked?

Lord Brett: My Lords, my apologies if my previous answers have seemed to be too long; I actually average about eight answers in seven and a half minutes. I was reminded on my first occasion appearing here that I should give short answers. The truth is that there has been more legislation; a Bill is coming forward to this House very shortly. Of course the Government are concerned and we are taking action. It ill behoves those who suggest that we are not.

Baroness Hanham: My Lords, I refer the Minister back to my noble friend Lord Marlesford's original Question. We have soldiers dying in Afghanistan at the moment to protect us against terrorism. One of the bases of terrorism is Pakistan. What action are we taking to ensure that people do not travel from this country as UK citizens on Pakistani passports that we do not know about?

Lord Brett: My Lords, I have explained why the system at the moment does not provide for that information to be available wholesale. I am sure that there are those selectively looking at those who may be suspected of going to Pakistan from this country for nefarious purposes. I also explained the timescale by which the system will be complete. In the mean time, I do not doubt that the authorities are looking very closely at the question that the noble Baroness raises.

Arrangement of Business
	 — 
	Announcement

Lord Bassam of Brighton: My Lords, with the leave of the House, we will have two Statements repeated today. To avoid breaking up today's Committee debate on the Banking Bill, my noble friend Lord Myners will repeat the Statement on financial markets at a convenient point at about 6 pm, followed by my noble friend Lord Malloch-Brown repeating the Statement on Gaza.

Banking Bill

Bill Main Page
	Copy of the Bill
	Expanatory Notes
	Amendments
	DPCommittee: 1st Report

Committee (3rd Day)

Clause 42 : Supplemental instruments
	Amendment 77
	 Moved by Baroness Noakes
	77: Clause 42, page 19, line 34, at end insert—
	"(c) provides for property, rights or liabilities specified in the original instrument not to be transferred from the transferor."

Baroness Noakes: I can be brief on Amendment 77, which adds a new paragraph (c) to Clause 42(3), which deals with supplemental property transfers. Under subsection (3), a supplemental property transfer is one that provides for property being transferred from the transferor under the initial instrument and makes any other provision that an original property instrument could make. That is set out in paragraphs (a) and (b) of subsection (3).
	What happens if the original transfer tried to transfer things that cannot in fact be transferred? Problems may not generally arise under UK law, but they possibly could under foreign law—for example, if the property has been confiscated under foreign law or there is some other legal obstacle to the transfer. What provision allows the original transfer instrument to be amended in those circumstances? It is not a reverse transfer under Clause 44, because no initial transfer has in fact taken place; and it does not appear to be within the scope of Clause 42, because of the wording of subsection (3), to which I referred. Perhaps the Minister can explain. I beg to move.

Lord Davies of Oldham: I am grateful to the noble Baroness for the way in which she expressed her amendment. We were somewhat uncertain about its nature, because it looked like a fairly minor drafting amendment. We do not believe that the addition of the word "any" changes the meaning of the clause. The current drafting already provides the law to make specific provision of any sort, so we do not think that any clarification is necessary. I hope the noble Baroness will understand that we think the clause as drafted is quite clear about the issues which she raises.

Baroness Noakes: The Minister says that the clause deals with the case where the original instrument provides for the transfer of property which is not in fact capable of being transferred. Is he saying that Clause 42 allows for that? I could not read that.

Lord Davies of Oldham: As I indicated, we were not quite sure about the nature of the noble Baroness's amendment. The Bank of England makes supplemental property transfer instruments following the transfer of property to a private sector purchaser or bridge bank. These provide particularly valuable flexibility for property transfers. Not only do the powers provide the Bank of England with the means of ensuring that an initial property transfer is effected; they may also produce a better outcome for the resolution. For example, a further transfer of property to a bridge bank may increase the value of the bridge bank and increase the amount that a private sector purchaser is prepared to pay for the business.
	We think that there is merit in the clause as it stands. The noble Baroness mentioned the foreign law issue. Clause 35 makes clear that a property transfer instrument may seek to transfer property located outside the United Kingdom and rights and liabilities governed by foreign jurisdiction. The Government understand that such a transfer may not always be effective, and the other place recognised it as a difficulty. As there are limits to what we can guarantee in these terms, we have included Clause 39, which provides that a transferor or transferee are under obligation to take any necessary steps to make the transfer of property effective. This enhances the likelihood of a successful transfer. What happens if the transfer cannot be made under foreign law? You could use a reverse transfer for the purpose of bridging the transfer back into alignment with foreign law. A reverse transfer under domestic law would certainly be possible and we might have recourse to that.
	The noble Baroness has identified an area of difficulty which we debated in the previous Committee sitting. None of us doubts that there are difficulties with property transfer when foreign jurisdictions are involved. It is not possible for us to give absolute guarantees in every single case. What the noble Baroness can rightly expect is that the Bill is drafted in such a way that the authorities are concerned to ensure that an effective transfer takes place wherever this is possible. That is what the existing drafting of the legislation is designed to do.

Baroness Noakes: I thank the Minister for that long explanation, in the middle of which I think I heard the answer to my question. I shall read Hansard carefully to ensure that I heard correctly that a reverse transfer could be made if it were necessary to amend the terms of an original property transfer instrument. I beg leave to withdraw the amendment.
	Amendment 77 withdrawn.
	Clause 42 agreed.
	Clauses 43 to 46 agreed.
	Clause 47 : Restriction of partial transfers
	Amendment 78
	 Moved by Baroness Noakes
	78: Clause 47, page 22, line 35, at end insert—
	"( ) The Treasury shall by order restrict the making of partial property transfers so no partial property transfer can have an effect on contracts or other arrangements which are relevant for regulatory capital purposes.
	( ) No order made under this section or under section 48 shall have the effect of altering contracts or any other arrangements which are relevant for regulatory capital purposes."

Baroness Noakes: We move to rather more complicated territory. Amendment 78 adds two new subsections to Clause 47. This is in the difficult area of partial transfers, which is potentially one of the most significant areas of the Bill for the banking community.
	For today's Committee, these are probing amendments, but the Minister should be in no doubt that the issues underlying them are of huge significance to the banking community. I know that the Government have been working constructively with the banking industry for some time, but there is unfinished business in this area and I hope that the Minister will at least give an update on the Government's position following the completion of the consultation on the November White Paper on partial transfers. Indeed, I hope that he will be able to return to this issue generally on Report with a finally agreed solution. If the Government are unable or unwilling to do so, I shall feel obliged to return with an amendment at that stage.
	My amendment seeks to ensure that the Treasury will not allow partial transfers to alter the effect of arrangements for regulatory capital purposes. The Government made this commitment in paragraph 2.16 of the November consultation paper on the special resolution regime. Industry players have been dismayed that, despite the unequivocal terms of paragraph 2.16, the Government have subsequently made it plain, both in Committee in another place and in the expert liaison group, that they have no intention of enshrining that commitment in primary legislation.
	My amendment seeks to do two things. First, the first proposed new subsection would require the Treasury to ensure that partial transfers have no effect on contracts that are relevant for regulatory capital purposes. Secondly, the second proposed new subsection tries to ensure that any secondary legislation made under either Clause 47 or Clause 48 would alter contracts that are relevant for regulatory capital purposes. I do not pretend that the wording of the proposed new subsections is perfect, and I have already indicated that I shall not divide the Committee on them today, but I hope that the Minister will look to their underlying purpose and respond in that light.
	Before getting to the meat of the amendment, I understand that the draft secondary legislation, which is being consulted on, will be made under Clause 48. There is a more general power in Clause 47, but I could find no reference to the purpose to which the Government intend to put it. I have drafted my amendment to cover both Clauses 47 and 48 on a belt-and-braces basis, but it would be helpful if the Minister set out the Government's intentions behind Clause 47.
	At the heart of the issues with which the amendment seeks to deal is the Government's basic approach to partial transfers. The Government wish to include as much as possible in secondary legislation and place as little as possible in the Bill. That, of course, is the customary government position in the name of flexibility. As I understand it, the banking community was initially prepared to go along with the Government's view on the basis that secondary legislation would cover its concerns, but I now detect a real concern about the likely content of the statutory instrument that is leading to a revived desire to see further changes to the Bill.
	My amendment seeks to deal with one important aspect, but while regulatory capital is an important issue, the concerns run wider. If there is any uncertainty about how the secondary legislation will affect contracts, it is that it will affect the overall attractiveness of London as a financial centre. It is likely that it would increase the cost of capital for UK banks, which will do nothing for their international competitiveness, and it will drive business out of London markets in favour of other jurisdictions where there is greater certainty.
	If there is any uncertainty about the legal position, it will be impossible to get clean legal opinions on contracts of set-off and similar contracts. That will certainly mean that they will not be effective for regulatory capital purposes both in the UK and in other countries. As I said, it will also make London an extremely unattractive place in which to do financial business, because, if the counterparties cannot get legal certainty, transactions simply will not happen. The lack of watertight set-off and netting arrangements also affects the non-bank counterparties and could disrupt conventional Treasury cash management techniques. It could also have an impact on what goes into the annual accounts not only of banks but of ordinary commercial businesses.
	My amendment today is based on regulatory capital on the basis that, if we can solve the issues for regulatory capital, the other problems will also be avoided. However, they may not be. Amendment 80, which is in the name of the noble Lord, Lord Eatwell, and is in this group of amendments, seeks to tackle the problem from a different direction, and I look forward to him speaking to it.
	There is a very real problem which will emerge as soon as the Bill receives Royal Assent. I understand that some banks are already involved in contingency plans in case the final version of the Bill leaves any doubts about the effectiveness of instruments for regulatory capital purposes. That contingency planning involves massive rewriting of contracts, and possibly things being taken out of the London market.
	What has concerned the industry is the draft statutory instrument, with its very wide carve-outs. It is difficult for the Committee to debate that draft statutory instrument, because it is not before us, but it underlies the concerns about the use to which Clauses 47 and 48 will be put. That is why I think it necessary to raise those issues. As the Minister will be aware, the industry wants to see set-off, netting and similar transactions left alone by partial transfers and completely unaffected by them. The industry is worried by the prospect of the carve-outs being made by the orders under Clauses 47 and 48. For example, the draft statutory instrument provides that foreign property is not to have protected rights. The BBA believes that the only viable way forward may be to exclude foreign property entirely from partial transfers.
	There are similar concerns about the carve-outs, such as in respect of deposits, and the issue of securities. All in all, the concerns which have been fed to us about the carve-outs, plus the uncertainty of not seeing the final version of the statutory instrument, have tilted the balance of opinion against carve-outs. People are certainly worried by the prospect of it being left to secondary legislation.
	The Government have said that some issues might be dealt with in the code of practice, but that would not be regarded as helpful. If such issues went to the heart of legal certainty, the code of practice would have absolutely no impact. We debated that in the context of Amendment 20, moved by the noble Lord, Lord Eatwell, on our first Committee day. A code of practice is not enforceable by anyone and can contribute nothing to legal opinions. Similarly, the no-credit or worse-off regulations to be issued in Clause 60 will not improve the ability to issue clean legal opinions because they fall far short of a government indemnity.
	These are very difficult issues. I hope the Minister will be able to lay out the Government's current position. I do not expect this to be resolved today. The consultation has, as I said, passed, so I hope that he can give at least a preliminary response on that basis. The industry remains extremely concerned about the way in which the Government are approaching partial transfers and the impact it will have on financial instruments and the financial services industry in the UK. I beg to move.

Lord Newby: I want to underline the noble Baroness's last point—the industry is extremely concerned about these two clauses. For a layman like me it is almost impossible to judge whether these concerns are justified. To what extent in the ongoing discussions with the industry on the principle do the banks and the Government basically agree about what this is trying to achieve? Is the argument a technical one about whether this goes in primary or secondary legislation, or is there still a difference in principle—or at all—about how the legislation should deal with this immensely important but equally arcane issue?

Viscount Eccles: I expect that there is an issue of principle—the absolutely basic fact of splitting a bank, to use the words in the Government briefing. The trouble is that in any negotiation to consider such a matter there is no leverage on the side of the banks.

Lord Eatwell: My Amendment 80 is grouped with that moved by the noble Baroness, Lady Noakes. The dilemma we face here is that the Government have two good policies that they are trying to pursue at the same time but which have contradictory effects. One of the good policies is the ability to pursue partial transfers, which may be very important if a bank is in crisis, while the other is the Government's declared intention to promote netting and set-off arrangements. My amendment is designed to protect such netting and set-off arrangements by using the relatively strong but not decisive expression:
	"A partial transfer ... shall not undermine any ... arrangements".
	I have chosen this form of words because while close attention will need to be paid to the nature of such arrangements, it should not be absolutely prescriptive. The amendment attempts to sustain the arrangements and provide a degree of legal certainty while not being totally prescriptive with respect to the Government's actions.
	I am afraid that the subsections in Clauses 47 and 48 that attempt to provide some degree of legal certainty and to protect netting arrangements are quite unsatisfactory because they are all conditional on whether the Treasury "may" by order do something rather than that it "will" do something. The amendment would provide the degree of legal certainty necessary to protect set-off and netting arrangements without in turn limiting the Government's ability to pursue partial transfers, which may also be valuable. It may be that I am trying to square a circle and we might end up with two desirable policies that unfortunately conflict with one another, and therefore I am interested to learn how the Minister will deal with the potential conflict between these two dimensions of policy.

Lord Myners: This group of amendments relates to clauses which enable safeguards to be put in place in respect of partial transfers. It may aid the debate if I first provide a general introduction to what the Government are seeking to achieve in respect of this issue. I welcome the constructive introduction given by the noble Baroness to these amendments and I share her concern that it is important to get this right. I am sure that the representations that the Government have received from the banking industry and others have also been made to Members of the Committee. We are making good progress and I hope to be able to report on that later when setting out a route to reaching a satisfactory end position.
	I turn first to the issue of consultation, and I shall bring noble Lords up to date on the position. The consultation closed on 9 January. We received only 15 replies, but those in the stakeholder communities most interested in the matter have broadly welcomed the approach to the safeguards that we are establishing. Interest remains around the protection of set-off and netting, in particular the proposed carve-out from the safeguards. However, the Government are listening to concerns and a meeting is to be held with the expert liaison group this week to discuss the consultation responses. I would be happy to come back to noble Lords following that meeting, when we reconsider the Bill on Report.
	As noble Lords are aware, the Government recognise that partial transfers may be potentially invasive, and they have been working extremely hard to ensure that appropriate safeguards are in place. Responding to interested parties' concerns, the Government are putting legislative safeguards in place to protect bank creditors and counterparties in a partial transfer.
	As my noble friend Lord Eatwell said, there are two noble purposes here: to promote the opportunity for partial transfer and to protect the concepts and efficacy of offset and netting arrangements. It is a delicate balance to ensure that the language of the Bill can respect both those objectives. We certainly recognise the importance that market participants attach to set-off and netting arrangements, and to security interests. For example, legal certainty about a netting agreement is vital for risk management. Therefore, in responding to stakeholders' concerns, the Government are consulting on the details of three safeguards.
	First, Clause 48 provides a safeguard to protect set-off and netting arrangements, on which so many bank counterparties rely. Secondly, to protect security interests, Clause 48 also provides a safeguard so that secured creditors retain recourse to their collateral. Thirdly, Clause 60, to which we will come in due course, provides a safeguard that we will provide compensation for creditors left in the residual bank—and I hope this addresses the point made by the noble Viscount, Lord Eccles—to ensure that they are made no worse off than if the whole bank had entered into insolvency procedure; that is, as if the authorities had not intervened. In addition, the code of practice will set out the types of circumstance in which the authorities would wish to consider a partial transfer.
	Building on the work done so far, the Government will continue to work with interested parties to develop these safeguards, as well as the other secondary legislation. To this end, the expert liaison group has been established to prepare the secondary legislation for the special resolution regime. The group has already met on various occasions and provided valuable advice on the detailed nature of the safeguards. Last November, having first sought the group's advice, the Government published draft statutory instruments for key safeguards. The consultation period for that document recently closed, as I have said, and we will be scrutinising those responses and finalising the secondary legislation.
	The amendments in this group relate to Clause 47, so I shall describe its provisions next. It enables restrictions to be placed on the making of partial transfers through the property transfer powers. The range of ways in which the Treasury may restrict partial transfers is deliberately broad. In addition to setting out restrictions, the power provides for secondary legislation to permit conditions to be imposed before a partial transfer can be undertaken, and it can require partial transfers to include particular provisions.
	Amendment 78 seeks to require the Treasury to make regulations under Clause 47 to protect contracts and arrangements that are relevant for the purposes of a firm's regulatory capital. Put simply, the calculation of how much regulatory capital a bank needs to hold is likely to be based, in part, upon the netting and set-off arrangements that it has in place. It is therefore important that those arrangements are protected, as was noted in the November consultation document.
	As I have already said, the Government are proceeding to scrutinise responses to the safeguards consultation and finalising the relevant secondary legislation. While it is important not to prejudge that exercise, I can say now that the secondary legislation to be made under Clause 48 will provide for substantial protection for set-off and netting arrangements. Such protection will cover the vast majority of contracts and arrangements relevant to regulatory capital purposes, which is important in order to address market concerns.
	However, the issue of regulatory capital is extremely complex. The Government's position is that rather than offer a general protection for regulatory capital, the secondary legislation should protect the types of contract that are important for regulatory capital. This approach provides greater certainty to counterparties about what is and is not covered. The Government consider that explicitly stating what kinds of contracts are protected is a more appropriate solution. As I have noted previously, it is also the Government's view that such provision is best suited to secondary legislation. With these reassurances, I hope that the noble Baroness will feel free to withdraw her amendment.
	The amendment tabled by my noble friend Lord Eatwell provides that a partial transfer may not undermine any pre-existing and close-out arrangements. Although I hope I have already made this clear, I should reiterate the Government's position that protecting netting arrangements is extremely important. The noble Baroness, Lady Noakes, is right to emphasise that getting this right is critical to London and the UK remaining an important banking centre.
	I fully agree with the underlying purpose of my noble friend's amendment. However, the Government consider that there are significant benefits in partial transfers. These have been demonstrated by a number of recent resolutions, particularly in relation to Bradford & Bingley plc. This is why the Government have proposed a strong set of protections for set-off and netting, but subject to limited tailored exceptions which will ensure that partial transfers can still take place in appropriate cases. The amendment, which provides that all netting and close-out arrangements must be protected without exception, would potentially prevent any partial transfers. But, as I have said, the Government agree with the general principles expressed by my noble friend that protecting set-off and netting arrangements is extremely important and we are putting in place detailed secondary legislation under Clause 48 to do just that. Draft orders have been published for consultation and the Government are currently scrutinising responses. I hope that this will reassure noble Lords.
	The noble Baroness, Lady Noakes, asked what safeguards the Government will introduce under Clause 47. She is right that the main safeguards will be made under the power in Clause 48. In Clause 47, the Government intend to use the power to provide a clear protection for counterparties which have been transferred to a bridge bank or private sector purchaser so that they have certainty that they will not be transferred back to the residual company. Details of this were provided in the consultation documents at paragraph 5.19 onwards. I hope that my noble friend also will not press his amendment.

Baroness Noakes: I thank all noble Lords who have taken part in the debate and the Minister for the spirit in which he approached his reply. We are perhaps not very far apart.
	The noble Lord repeated what is contained in other documents and other communications—that the "no creditor worse off" regulations and the code of practice somehow contribute to the certainty required in this area—but the clear opinion of the lawyers dealing with this is that neither the code of practice nor the "no creditor worse off" regulations will contribute one jot to legal certainty and therefore are not part of the framework necessary to create it. We need clean legal opinions for all kinds of reasons, including regulatory capital. Unless we can get clean legal opinions which rest on legal certainty, we will not make progress in this area.
	It is most disappointing that the Government are not prepared to back their clear statement in the consultation document that they have no intention of upsetting anything that is necessary for regulatory capital purposes. They are not prepared to reflect that clear commitment in legislation, which is what my amendment seeks to do—although not necessarily in very good words—and I urge them to think again.
	I will quote from an organisation with which we have been in touch—I thought that we would be debating this amendment last week and took a briefing in the afternoon. The organisation said:
	"As matters stand, there remains significant doubt about whether the Government have appreciated fully the potential consequence of their proposals and as a result, there remains"—
	this is in the banking community—
	"considerable unease over the possibility that an inability to attract clean legal opinions in support of longstanding setoff and netting arrangements may significantly impact regulatory capital and the underlying economics of completing transactions within the UK. This in itself could significantly impact liquidity and place further constraints on the ability of banks to lend".
	This is something that we will discuss later this afternoon, and is not something that we want to achieve. It is such an important area and it is a pity that we will have no discussions before Report, because the issue is still open on whether the Bill has enough in it to justify the reliance on secondary legislation that the Government want. It will be difficult to decide whether the Bill goes far enough and we can rely on that secondary legislation. If the Minister can communicate before Report with members of the Committee who have an interest in this matter, that will help a more efficient process at Report stage.

Lord Myners: If the noble Baroness will give way, I would be delighted to respond positively. The issue of legal certainty is clearly an important test that we strive to pass. The representation that the noble Baroness read was also reflected in at least one response to the consultation document. My officials advise me that we are making good progress. We have found the responses to the consultation helpful, and we think that the gap is narrowing. I am as committed as the noble Baroness is to achieving the right outcome, so we will ensure an appropriate arrangement to inform the noble Baroness and other noble Lords interested in this matter on progress.
	I, too, had believed that we would get to this amendment last week. However, the noble Baroness will recognise that these are important amendments and it is critical that we spend time on them, while also recognising that we have a great deal more work to do in Committee. I invite the noble Baroness, and my noble friend, to withdraw their amendments.

Viscount Eccles: The Minister referred to the responses that were due on 9 January. The questions were specific, and there was a draft Statutory Instrument covering the subject that we have been discussing. When will the responses be published?

Lord Myners: I will provide the noble Viscount, Lord Eccles, with a reply in writing, or perhaps later in Committee I will have the opportunity to provide the information that he seeks.

Lord Eatwell: I, too, welcome the Minister's commitment to discussion on these matters prior to Report. By the time that we get to Report, things may have moved on too far. I understand that we are working to a strict timetable, but such discussions would probably facilitate the timetable rather than inhibit it.
	In his comments on my amendment, the noble Lord said, somewhat to my surprise, that it would prevent partial transfers. I did not think it was as prescriptive as that. However, I have been searching for a suitable verb to reduce that probability. Maybe "shall not undermine" does not work. However, a suitable verb in the clause would facilitate an improvement in legal certainty. I am grateful to the Minister for his comments and for his consideration of these matters.

Baroness Noakes: I think we have got as far as we can today. Anything the Minister can provide Members of the Committee with between now and Report would be most useful to our ability to handle this well at that time. I beg leave to withdraw the amendment.
	Amendment withdrawn.
	Amendment 79 not moved.
	Amendment 79A
	 Moved by Viscount Eccles
	79A: Clause 47, page 23, line 5, leave out "to transfers generally or"

Viscount Eccles: Before seeking to achieve certainty and the removal of a degree of flexibility with this amendment, I want to draw attention to the complexity of partial transfers, which is the matter under consideration. Orders as envisaged by Clause 47 are needed only because there is the possibility of partial transfers. Paragraph 1.14 of the special resolution regime is relevant to assessing whether you can make a general order. It says that the property transfer powers provide the authorities with the flexibility to split a bank. This option would most likely be used for the purposes of transferring the good part of a failing bank's business into a new company, either as private sector purchaser or a bridge bank. In either case a residual bank, a "resco", would be left behind, containing any untransferred assets and liabilities.
	The following paragraph then quotes Bradford & Bingley, but I do not think paragraph 1.14 applies to that company. The case of Bradford & Bingley was much more like a temporary transfer into public ownership, not a transfer into a bridge bank. There was a private sector purchaser that purchased the good assets while the bad assets, or the less good assets, were brought into public ownership, whereas in the case of a bridge bank my understanding is that it would be the other way around—that is to say, the good assets would be put into the bridge bank while the bad assets, or the less good assets, would be left behind. The justification for turning the policy around from the one that was pursued with Bradford & Bingley is in the following paragraph: it would be less expensive for the funders of the resolution, the taxpayer, and, under proposals in the Bill, the FSCS.
	In considering orders under this clause, it is important to understand whether the Government are committed to this different policy—indeed, as I see it, this reverse of the Bradford & Bingley policy—of taking the good assets into a bridge bank and leaving the bad assets in the existing, now residual, bank. That leads to a second question, as it leaves the shareholders with the task of dealing with the bad assets as there is no transfer of shares into a bridge bank, while the bridge bank, in the ownership of the Bank of England, has the good assets. In my submission, that brings greater complexity, and it is by no means certain that the costs will be lower; in fact, it is highly likely that the costs might eventually turn out to be higher. If and when you split a bank, although the Minister sought to reassure me earlier, I do not see how you can ever tell whether the shareholders in the residual bank will be better or worse off than they would have been had the bank been left whole. I do not understand how anyone could be sure what the outcome would have been if the bank had not been split, and therefore how you know whether people are worse off as a result.
	I would like to be assured that the Bank of England has argued for this approach of taking the good assets into a bridge bank and leaving the less good ones behind. If it has so argued, what arguments has it put forward? I cannot believe that these would have rested on the expression "less expensive". If it is decided to proceed with partial transfers, is there anything which could be called "general" about the order? I have sought to leave out the words which envisage the possibility of a general instrument. Indeed, the draft instrument, which is in the papers before us, looks quite specific. It will be an additional reassurance in the difficult area of legal certainty if the orders under partial transfer—if indeed they go ahead—are made specific and not left open to the possibility of also being general. I beg to move.

Lord Higgins: I once saw on television an advertisement for an organisation called confused.com. I am not sure whether I ought to apply to it. I do not wish to delay the Committee, but can the Minister give me a simple explanation of this point? As I understand it, it is the Government who will be making partial property transfer orders. I am not clear on why they feel as though they might also need to make an order restricting the making of partial property orders. No doubt there is a simple explanation.
	The Minister said earlier that he thought—indeed, that he was convinced—that the matters dealt with in this complicated part of the Bill were best dealt with by statutory instruments. Of course, the long-standing traditional argument against that is that they are not amendable. Is there any reason, other than urgency, why the Minister thinks that we ought to have this done by statutory instrument, rather than by part of the Bill at a later stage in our proceedings?

Lord Davies of Oldham: I am grateful to both noble Lords who have contributed to this short debate. I will do my best to answer the specific questions involved. The noble Viscount, Lord Eccles, raises some fundamental points with regard to the Government's intentions for these provisions and explains why he wants his amendment considered sympathetically. Clause 47 provides the authorities with the means to place restrictions on the nature of partial transfers that they may effect through the use of the property transfer powers provided by this part of the Bill. The making of the restrictions has the potential to provide bank stakeholders with greater certainty about how the property transfer powers will be used to effect partial transfers. As was clear from the previous debate, we are all concerned about certainty and clarity in what all who have considered them recognise are complex and difficult issues.
	To this end, the Government have recently consulted on what secondary legislation should be made under Clause 47. At this stage we are proposing that the power should be used to place restrictions on reverse property transfers. This restriction is designed to provide certainty to creditors transferred to a bridge bank that they will not be moved back to the residual bank. Consultation on this, and indeed a wide range of matters relating to partial transfer safeguards, is of course ongoing. As my noble friend indicated in the previous debate, we have consultations which are still to be concluded. We will keep the House fully informed of such developments, certainly in the context of our further consideration of the Bill on Report.
	The problem that we have with the amendment in the name of the noble Viscount, Lord Eccles, is that it would remove the power for the Treasury to make orders on restrictions which apply to all partial transfers. In essence, the amendment would not allow the Government to make general restrictions on all partial transfers. It would allow us to make restrictions only to individual types of partial transfer.
	We believe that the power to make a wider range of different types of restriction is useful and ultimately beneficial to the market. Given the nature of the powers, stakeholder interest and technical complexity of the issue, the Government consider it appropriate to take a power in the Bill to provide for restrictions to be made as the authorities deem appropriate. In particular, it should be noted that these powers can be used only to restrict—not, I hasten to add, broaden—the nature of the partial transfers which can be made.
	I remind the Committee that the special resolution regime is a new legislative proposal. Experience may show that partial transfers should be more or less restricted than initially thought, to respond to continuing market reaction to these powers, or to the authorities' developing practical expertise in resolving banks in difficulty. At the very least, the nature of the restrictions will need to be updated in line with innovation in the financial markets. Given this position, which I am sure commands the understanding of the Committee, we believe that the clause as drafted is ultimately helpful to stakeholders in allowing different forms of restrictions on the use of partial transfers.
	However, the noble Viscount raised one or two issues. He is absolutely right, of course, that the resolution of the Bradford & Bingley problem was different from the situations provided for in the Bill. That resolution was conducted under a different Act which is due to expire in the very near future. That Act does not contain the powers for a bridge bank tool, which is provided for in the Bill and which I am sure commands considerable support. The reference to Bradford & Bingley was included to demonstrate the benefit of a partial transfer approach in general terms. The industry supported the way in which the Bradford & Bingley issue was resolved.
	I was asked whether the Bank of England agrees with partial transfers. The answer is yes. All the authorities, especially the Bank of England, support the need for partial transfers. All agree that we need the flexibility best to meet the special resolution regime objectives. The benefits include increasing the chance of private sector purchase, which is the objective of this part of the special resolution regime, particularly if it wanted to purchase only part of any such property. I was also asked by the noble Viscount whether partial transfers did not mean that costs were necessarily lower. Partial transfers offer the opportunity to leave bad assets behind—I think that he conceded that point—to enable them to be wound up in an orderly manner. This may well be fully in line with the SRR objectives, including, not least, the protection of public funds.
	The noble Lord, Lord Higgins, pointed out a difficulty with statutory instruments, which I recognise; namely, that they are not amendable. However, we need the ability to update these safeguards as market practice develops. The Committee will recognise that we have provided for expert advice to be offered to the Government. Inevitably, we are faced—no one can foresee a future different from the past in one respect—with the increased rapidity of change and fluctuations in market activity and market practice. We need a flexibility that primary legislation can never convey. That is why we feel the need in this area to indicate that we will be using secondary legislation.
	It is also the case, as my noble friend indicated earlier, that we still have refinements and developments to make on the nature of secondary legislation, on which we are in active consultation. We will make the position as clear as we can as the Bill progresses through the House. I hope that the noble Viscount will feel that I have given him a reply that explains why his amendment would be restrictive; more restrictive than we want the legislation to be. Therefore, I hope that he will feel able to withdraw the amendment.

Lord Higgins: I am sorry to come back on this, but I still have not understood this rather simple point. As I understand it, the Government would make a property transfer instrument, and presumably they determine the terms of that instrument. Subsequently, apparently, they make an order that restricts the terms of that instrument. Is this simply in case they have second thoughts? Why is it not all done in the initial instrument?

Lord Davies of Oldham: We are seeking to be flexible; I hope that the noble Lord will recognise that we are seeking to be flexible in a direction that ought to command the support of the Committee. After all, we are talking about the nature of restriction. The noble Lord is right. Are we making provision against the eventuality that we might need to effect legislative change quite rapidly, which we could not possibly do through primary legislation and, therefore, which would involve a need to change a statutory instrument? We are seeking legal certainty for the market. The market can look at the legislation and know what cannot be transferred under a partial transfer. It is of the greatest importance that the market should recognise that. The noble Lord, Lord Higgins, will appreciate that where the Government think that they might have to think again it is always against the parameter of moving towards reducing restrictions. I hope that the noble Lord will accept that, in that respect, the Government are seeking to respond to a changing market in a positive way, with the overall objective of trying to give legal certainty in an area that we all recognise is complex, difficult and potentially rapidly changing.

Viscount Eccles: I thank my noble friend Lord Higgins and I thank the Minister for his explanation. I assure the Committee that I am not looking to make trouble, as it were. I am looking to see how there could be more certainty. Market certainty is not just legal certainty; it is broader than that. I remain puzzled as to why, if the subsection read, "An order may apply to transfers of a specified kind, or made or applying in specified circumstances", that would not in fact be quite adequate for the purpose of restriction under the system of partial transfers.
	While thinking not only about my amendment but about the whole discussion of partial transfers, I should like to ask the Minister whether there could possibly be—one would hope that there never could be—a restriction made in an order that said that only good assets were to be transferred in a partial transfer? It seems to me that there will be circumstances in which, first, it will be very difficult to know how to make a split between the good and the less good and, secondly, in which it would be sensible to take a mix of assets and not simply to look for the good ones.

Lord Davies of Oldham: I understand the noble Viscount's point. I hesitate to be too specific. The Committee will appreciate and he will recognise that we are talking about these issues of restrictions in terms of the constraints on them. We are working with the grain of his argument. Perhaps the noble Viscount will allow me to respond directly in writing to his question. Otherwise I trust that the broad tenor of the Government's thinking is sufficiently acceptable for him to withdraw his amendment.

Viscount Eccles: I am grateful to the Minister for that reply. I refer him again to paragraph 1.14 with which I started, which is the basis of the comfort that I seek. Meanwhile, I withdraw the amendment.
	Amendment 79A withdrawn.
	Amendment 80 not moved.
	Clause 47 agreed.
	Clause 48 : Power to protect certain interests
	Amendment 81
	 Moved by Baroness Noakes
	81: Clause 48, page 23, line 14, leave out paragaphs (a) to (c) and insert—
	"(a) "security interest" means any legal or equitable interest of any right in security (but not a title transfer collateral arrangement) created or otherwise arising by way of security including a charge, mortgage, pledge or lien and including, in relation to Scotland, a heritable security,
	(b) "set-off or netting arrangement" is an agreement or arrangement between two or more parties under which Obligation 1 can be set off or netted against Obligation 2 to discharge or reduce the amount of Obligation 2 or different claims or obligations can be converted into a single net claim or obligation (incuding under a close-out netting provision or a title transfer collateral arrangement), whether by contract, operation of law or otherwise, whether on a bilateral or multilateral basis and whether through the interposition of a clearing house central counterparty, settlement agent or otherwise,
	(c) "set off" includes, in relation to Scotland, compensation, retention and/or balancing of accounts, as the case may require,
	(d) "close-out netting provision" means a term of an arrangement, or any legislative provision under which on the occurrence of a specified event, whether through the operation of netting or set-off or otherwise—
	(i) the obligations of the parties are accelerated to become immediately due and expressed as an obligation to pay an amount representing the original obligation's estimated current value or replacement cost, or are terminated and replaced by an obligation to pay such an amount; or
	(ii) an account is taken of what is due from each party to the other in respect of such obligations and a net sum equal to the balance of the account is payable by the party from whom the larger amount is due to the other party;
	(e) "title transfer collateral arrangement" means an agreement or arrangement, including a repurchase agreement, evidenced in writing, where—
	(i) the purpose of the agreement or arrangement is to secure or otherwise cover obligations owed to the collateral-taker;
	(ii) the collateral-provider transfers legal and beneficial ownership in collateral to a collateral-taker on terms that when the relevant obligations are discharged the collateral-taker must transfer legal and beneficial ownership of the same or equivalent collateral to the collateral-provider."

Baroness Noakes: Amendments 81 and 95 amend Clause 48 by rewriting the definition paragraphs for security interests, set-off netting and similar arrangements. The amendment was drafted by the City of London Law Society in conjunction with the Scottish Law Society, so I claim absolutely no credit for it. I have a detailed technical note of explanation which the City of London Law Society prepared, but I am aware that it has been available to other noble Lords, it is available publicly, and that the Treasury will have received it. Therefore, in order not to delay the Committee I had not proposed to read it out.
	These amendments have the backing of banking representative groups such as the BBA and LIBA, and are supported by several large banks with which we have been in contact. I also understand that the amendment has been discussed with the Treasury and others in the expert liaison group. The Government have tabled their own amendments in this group, which cover some of the same ground and to which the Minister will speak. I should say, in the expectation that he will resist my amendments, that we will accept the government amendments, but it is not the end of the story.
	I am sure that the Minister is aware that the banks and lawyers who have been engaged with this issue, while welcoming the moves that the Government have made with their amendments, are not convinced that the government amendments go far enough. The City of London Law Society recently submitted further comments to the Treasury. In particular, I understand that there is a desire to see the wording in Clause 48 made to conform to definitions used in regulation 3 of the Financial Collateral Arrangements (No. 2) Regulations 2003 and regulation 2 of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999.
	These are not mere technical issues of drafting preference. An eminent lawyer with whom I was in contact last week said that they are of considerable practical and legal importance in achieving the necessary level of certainty and confidence in the financial markets. Therefore, I anticipate that this is not the end of the story and that we will almost certainly need to return to this issue on Report. In the mean time, I hope that the Government will accept the importance of having legally watertight definitions of these terms in the Bill, because that will drive what is to be covered by the regulations made under the clause. I hope that the Minister will respond by stating the position as the Government now see it.
	Will the Minister address specifically the issues relating to Scottish law? There are some specific Scottish words in my amendment, and another issue has arisen since I tabled it on whether there needs to be a reference to trusts used in Scotland as an alternative to contracts, because Scots law does not accommodate equitable transfers. Do the Government accept that something is needed in Clause 48 to reflect the Scots law dimension? I assure him that his answer will be read with interest north of the border. I beg to move.

Lord Brabazon of Tara: I should point out that if this amendment is agreed to, I cannot call Amendments 82 to 87.

Lord James of Blackheath: I wish to speak to Amendment 85, which is based on my great concern, from experience, of the confusion that arises in any offset arrangement at the closing out of a business. The clause completely underestimates the extent of the hazard which is initiated and which causes untold suffering and confusion to all parties in trying to bring about a satisfactory resolution of any transfer of a bank's ownership in these circumstances. The Insolvency Act 1986 is extremely explicit on the rules governing offset. It has become a matter of custom and practice and is very well policed and overseen by the insolvency practitioner profession, which, to my knowledge, has produced no great dissent during its 23 years of life.
	I invite the Minister to consider an actual case in which I was involved. You have to bear in mind that on the day that you close out a huge transaction such as this, a lot of people will rush to complete transactions against the clock. Let us suppose that on the morning of the day when you are going to close the whole deal, you receive a transfer of half a billion pounds' worth of funds from America, representing a combination of consideration and debt repayment for a subsidiary of a company that banks with the bank with which you are dealing. To whom does that half billion belong in the hours leading up to and through the completion process? There are at least half a dozen applicants for the ownership of that money. If the Government now try to introduce a provision that effectively gives them the right to direct where that half billion goes, they will spend the rest of their natural life in litigation.
	The situation is complex. First, the assumption is that the company being sold is owned by a company which banks with a syndicate of banks, because all these loans are syndicated. Some £200 million of the £500 million is due to be the consideration, but when, only two hours away from the company being sold or restructured, the banks get the half billion pounds, they will try to imply that the whole amount belongs to them to divide according to whatever ratio they represent in sharing the overall debt of the company to the banks. That immediately opens up the possibility of a challenge by the shareholding owners of the company that has effectively sold the company in question, and beyond that is the question of who provided the funding to the company. Perhaps it was a subsidiary owned in America—which is what happened in my case—with £300 million of debt to the American subsidiary. What about the American banks? Would they not have a claim? They would have lawyers queuing up to have a go on that one.
	The whole situation is so complex that it seems the only safe way for the Government to deal with it is to knock out paragraph (c) in order to allow the Insolvency Act 1986 to continue to rule. It has never let us down yet and it will guide us with accuracy through any challenge that may come. The Government have a hard enough task already; they should not make it go from the difficult to the impossible.

Lord Stewartby: Perhaps I may raise a very small point on Amendment 82 and seek some enlightenment from the Minister. Amendment 82 would amend the clause to read that "security interests" means "arrangements under which one person acquires by way of security an actual or contingent interest in the property of another". The amendment seeks to introduce into the clause the phrase "by way of security". Does that mean by way of the exercise of security or does it mean, as I think it probably does, by way of the taking as security for a liability of an interest in the property? I am sure that the noble Lord will have no difficulty in putting me right on that.

Lord Myners: We have covered the general purposes clause so I shall start by addressing the questions of the noble Baroness, Lady Noakes, and by presenting the Government's amendments. I thank her for the constructive way in which she has introduced the amendments in her name, and her indication that she intends not to press them to a vote but rather to seek a better explanation and to help shape and influence our thinking as we approach Report. I am confident that we have interests in common and that all parties are committed to seeking the best possible wording.
	As I have noted, Clause 48 provides a broad definition of the interests to be protected. This is intentional and ensures that the secondary legislation to be made under the power is not restricted by the technical definitions in the clause. Further detailed technical provision will be unsuitable for primary legislation. In short, this ensures that a broad range of interests can be included within the scope of the safeguard power and seeks to ensure that the safeguard power remains sufficiently adaptable to accommodate innovation in the financial markets.
	The Government have received a number of representations from industry bodies and practitioners in relation to the definitions used in this clause. While I emphasise that Clause 48 is an enabling power, so is not the legislation which provides the actual protection, the Government consider it appropriate to amend the definitions to eliminate any outstanding doubt about the types of interests the clause is designed to protect. In broad terms, the amendments do two things. First, they separate the definition of security interests from title-transfer arrangements. Although the economic effect of the two types of arrangements may be either the same or similar, there are significant legal distinctions between the two. For example, a title-transfer security arrangement involves the outright transfer of ownership of the property in question from one party to another. This is not normally the case with security interests, which typically involve the acquisition by a creditor of a right in property which remains owned by the debtor. As a result, the Government consider it desirable to remove the definition of title-transfer arrangements from the definition of security arrangements and to define it separately. Secondly, the Government's amendments make clear that the power does not treat set-off and netting as synonymous concepts. Although netting arrangements sometimes use set-off, netting can also be achieved through other methodology legally distinct and separate from set-off.
	The Government's intention in bringing forward Clause 48 is not to change the existing legal concepts of security interests, set-off and netting arrangements and title-transfer security arrangements. Rather, the purpose of Clause 48 is to enable protection to be provided for these interests in the context of partial transfers under the special resolution regime, while allowing scope for the enabling power to address changes to these concepts as industry usage continues to develop and innovate. Some may say we have had a bit too much innovation in banking in recent years, but the industry will continue to innovate to meet the needs of its customers and we must be careful that we do not inhibit the benefits that can arise from innovation.
	I believe our intention is made absolutely clear by the provision of Clause 48 which indicates that these definitions only apply for the purpose of this section. It is hoped, however, that the amendments in my name usefully clarify the intentions of the Government in view of the helpful representations that have been made by interested parties. I hope that the government amendments will be accepted.
	It is my understanding that opposition Amendments 81 and 95 would have a similar effect to the government amendments tabled in relation to this clause. Indeed, the noble Baroness, Lady Noakes, indicated that that was the case. These amendments would make technical changes to the definitions used in Clause 48. In particular, they relate to the definitions of "security interests", "set-off", "netting" and "netting arrangements".
	While the Government agree with the broad purpose of the amendments, they consider that the amendments tabled in my name offer a more appropriate solution. Noble Lords may find it useful if I explain why the government amendments differ slightly from those proposed by the noble Baroness. In broad terms, the difference is one of level of detail.
	I start by noting that Clause 48 does not provide the actual safeguard. It is, as I said, an enabling power, providing the Treasury with the power to make appropriate safeguarding secondary legislation. There is a risk that, in seeking greater detail in the clause and in using technical terminology, the opposition amendments may unduly narrow the scope of the enabling power.
	Perhaps it would help if I gave an example of this. The opposition amendments would introduce terminology relating to the law of England and Wales, and Scotland, into the definition of security interests. The Government, by contrast, think it preferable to describe security interests in the generic terms alluded to in my introductory remarks. This approach ensures that the potential scope of protection of Clause 48 can include English security interests, but also security interests granted under other legal systems. The use of domestic terminology in the amendment may imply—an unintended consequence, I am sure, but one that illustrates my wider point—an intention to exclude foreign law security interests from the security interests that may be protected under Clause 48.
	The noble Baroness, Lady Noakes, asked about Scottish law. There is, of course, considerable interest in this Bill in Scotland, as elsewhere in the United Kingdom. The benefit of using broad and generic terms in the clause is that that enables the broadest range of interests to be protected, including those under Scottish and, indeed, foreign law regimes. Greater precision can, if necessary, be used in the order made under the clause. We are aware of the issue with Scottish trust law and are considering it further, but we are grateful to the noble Baroness for raising it in debate. We will certainly introduce further amendments if that proves necessary to address the particular requirements of Scottish trust law.
	In reciprocity to the constructive way in which the noble Baroness has presented these amendments, I would be more than happy to offer a meeting between industry lawyers, including those to whom she referred, Treasury legal advisers and parliamentary counsel to discuss Clause 48, if that were considered helpful. These are highly technical provisions and I think that all noble Lords are agreed that it is important that we get them right. I hope that the noble Baroness accepts this explanation and remains of the view that she need not press Amendments 81 and 95 but can support instead the government amendments brought forward in relation to this clause.
	The paragraph that Amendment 85 would omit makes it clear that netting arrangements include what is known commercially as "close-out netting". This is an important type of netting arrangement. Following a trigger event, a party under a close-out netting arrangement is entitled to close out all outstanding contracts subject to the netting arrangement, calculate a sum—for example, related to profit or loss—in respect of each and then work out a net sum either owed or owing.
	One of the principal characteristics of close-out netting is that it permits netting in respect of contracts that have not fully run their course—for example, where both parties have not yet finished performing their obligations under the contract and no actual debt is owed or owing at the time of the trigger event. That is why the definition refers to theoretical debts. That form of netting is important. For example, it is used in the master agreements of the International Swaps and Derivatives Association. The omission of that definition would suggest that Clause 48 was not intended to be capable of being used to protect that form of netting.
	The noble Lord, Lord James, asked a series of complicated questions about a theoretical example. I am aware that what I say at the Dispatch Box can be relied on by the courts as indicating the Government's thinking. It would be unwise for me to seek to address at the Dispatch Box the technical questions that he raised. Instead I offer to address them, if I can, in writing, so that he can have the benefit of that explanation and the words that I used immediately prior to my statement to reach a conclusion on whether he wants to table his amendment again on Report. On that basis, I invite him not to move his amendment.

Lord James of Blackheath: I greatly appreciate that information. When drafting that response, will the noble Lord bear in mind that my great concern is that the Government should not create a two-structure law society where the Government have control of the law in one way through the Bill but the Insolvency Act 1986 dictates a different set of standards for everyone else?

Lord Myners: I will certainly ensure that that is taken into account. I respect the fact that the noble Lord is probably the world's greatest living expert on the Insolvency Act 1986, and I shall approach the drafting of my response to his question with considerable care and some trepidation.

Viscount Eccles: Does experience arising from Northern Rock, which has now had a certain run, and with Bradford & Bingley, with a much shorter run, throw some light on the need to make the Bill so much more complicated than the Northern Rock Act, which relied on itself and the existing body of legislation? As the Minister just reminded us, the clause is an enabling clause allowing powers to be used but only when they are needed and by secondary legislation. My question, which relates to the argument made by my noble friend Lord James, is: are we absolutely sure that we need all this additional law in the light of experience to date with failing banks?

Lord Myners: I suggest to the noble Viscount, Lord Eccles, whose considerable knowledge relating to mortgage lending and whose interest in the matter I acknowledge, that the circumstances in which a bank may be placed into a special resolution regime are multiple. We must seek to ensure that we have as many options open to us as necessary successfully to address that situation.
	The Bill provides a permanent framework to deal with banks in difficulties, building on and refining the temporary tools introduced by the Banking (Special Provisions) Act, to which my noble friend Lord Davies of Oldham referred a few moments ago. In preparing the permanent replacement to that special provisions Act, the Government have sought to refine and develop its provisions. That has followed extensive consultation with interested stakeholders, including the tripartite authorities.
	The special resolution regime provides a clear framework for the exercise of these powers, including clearly stated objectives, conditions for entry into the special resolution regime and a code of practice providing further guidance to the authorities in exercising these powers. The SRR includes new tools to deal with failing banks, including the bridge bank, two new insolvency procedures—the bank insolvency procedure for fast pay-out to depositors and the bank administration procedure to make partial transfers effective. We will come to these procedures later. The essence of the Bill is to anticipate the possibilities and to ensure that we have the necessary response mechanisms available to us in order to achieve outcomes consistent with the Bill's objectives.

Baroness Noakes: I thank all the noble Lords who have taken part. In respect of the intervention made by my noble friend Lord Eccles, we accept that this Bill has a much more sophisticated approach than the 2008 Act. It specifically allows for a bridge bank, which is where we start to get into partial transfers. My party urged that bridge bank facility from the outset, so we support the concept; it is the practical application of it that is causing the difficulty.
	I am glad we have a shared interest in getting this right. The issue is going to be whose drafting is better to achieve the purpose that we are settled upon. The Minister kindly invited me to be thrown to the wolves. That could describe a meeting of Treasury lawyers and City lawyers. As far as I am concerned, the most useful way forward is that the Treasury talks to the banking community. If the banking community remains concerned, then I must raise those concerns with the Minister. I do not believe that there is anything that I personally can add to the resolution, but I think it is very important that, as a matter of urgency, those discussions are continued.
	The Government are saying they want something as broad as possible and the lawyers in the City are saying they want something that adequately describes the sorts of documents that they deal with every day of the week and uses that language. The Minister did not respond to the point that the City of London Law Society is particularly concerned about, which is conforming the wording to the Financial Collateral Arrangements Regulations and the Financial Markets and Insolvencies (Settlement Finality) Regulations. If there is any ambiguity about whether they are fully covered, that would cause problems. So I hope the Minister will instruct his officials to look at that aspect. He did not mention it when he responded. That is an addition to the issue of whether it involves broad language or narrow language. Whether we can do a positive read-across to European legislation is also very important.

Lord Stewartby: Before my noble friend withdraws her amendment, can the Minister respond to the queries I raised?

Lord Myners: I thought I had answered the query that the noble Lord, Lord Stewartby, raised. From recollection, the noble Lord gave two possibilities and I believe it was the second of the two possibilities, but I apologise if I cannot remember with complete clarity which they were. The noble Lord obviously remembers and I will be delighted to rely on his clear recollection.
	Let me also say that I will absolutely make sure that the point made by the noble Baroness about conformity of language receives careful and serious consideration.

Baroness Noakes: I am grateful to the noble Lord. I beg leave to withdraw.
	Amendment 81 withdrawn.
	Amendments 82 to 84
	 Moved by Lord Davies of Oldham
	82: Clause 48, page 23, line 15, after "acquires" insert ", by way of security,"
	83: Clause 48, page 23, leave out lines 16 and 17 and insert—
	"(aa) "title transfer collateral arrangements" are arrangements under which Person 1 transfers assets to Person 2 on terms providing for Person 2 to transfer those or other assets if specified obligations are discharged,"
	84: Clause 48, page 23, line 18, leave out "or "netting""
	Amendments 82 to 84 agreed.
	Amendment 85 not moved.
	Amendments 86 and 87
	 Moved by Lord Davies of Oldham
	86: Clause 48, page 23, line 20, leave out "includes," and insert "are arrangements under which a number of claims or obligations can be converted into a net claim or obligation and include,"
	87: Clause 48, page 23, line 23, at end insert—
	"or to be converted into a net debt, and
	(d) "protected arrangements" means security interests, title transfer collateral arrangements, set-off arrangements and netting arrangements."
	Amendments 86 and 87 agreed.
	Amendment 88
	 Moved by Baroness Noakes
	88: Clause 48, page 23, line 24, leave out "may" and insert "shall"

Baroness Noakes: I shall also speak to Amendment 92. These are probing amendments to explore the consequences of no statutory instrument being made under Clause 48 or of such an instrument being delayed.
	Under Clause 48, it is left to the Treasury's discretion as to whether the Treasury makes an order that restricts the partial property transfers to deal with the problems of set-off and so on. In another place, the Minister undertook to discuss with his officials whether this formulation should be mandatory, especially in view of the huge importance attached to it in the financial community. I could find no trace of that being discussed further, which is probably not surprising as the Report stage in another place was very truncated: hence I have tabled a conventional "may"-to-"shall" amendment—Amendment 88—to tease this out further.
	There is considerable unease among the banks about there being any delay between the Act and the related statutory instrument coming into force. This is on top of the concerns about the content of the instrument, which we have already debated. The concerns relate more to the paragraph 2.16 commitment in the November White Paper to protect contracts relevant for regulatory capital, which we debated in our discussion on an earlier amendment, and to the fact that, if there is no certainty about an acceptable statutory instrument being available immediately after Royal Assent, there will be a period of great uncertainty for banks and their customers. I have already mentioned today that it is understood that some banks are already devoting considerable time and effort to planning the unwinding of positions in case adequate legal certainty is not available. This could involve considerable cost and could, in extremis, push international banks towards relocating their operations outside the UK.
	My Amendment 92 is an attempt to deal with this uncertainty. It says:
	"Until an order has been made under this section a partial property transfer shall have no effect on security interests, set-off or netting arrangements".
	That is, those arrangements cannot be unpicked by a partial transfer unless a statutory instrument under Clause 48 is already in place, setting out how they are to be dealt with.
	I do not pretend that the wording of the amendment is ideal, but we need to find a way of giving certainty to the banking community. The Government will say that they will use the accelerated statutory instrument procedure set out in Clause 249, which we will come to if we ever get to that clause. However, that does not mean that a satisfactory statutory instrument will be produced and it does not guarantee that a period of uncertainty will be avoided. We need to find a solution in the Bill to this problem. I beg to move.

Lord Davies of Oldham: I am grateful to the noble Baroness for introducing her two amendments. As she rightly said, the first amendment was tabled in Committee in the other place, and the Economic Secretary undertook at that stage to consider the point that it raises. There has been considerable consideration of the issue, and the Government were not unaware that the matter might be raised when the Bill came before your Lordships' House. Once this point had been identified in the other place, we gave considerable thought to it, but we do not think that a change to the drafting is appropriate.
	Clause 48(2) provides for a range of things to which the safeguarding order may relate. Indeed, there are four paragraphs to the subsection, and it may turn out that one of them is not used in any order that is made. Clause 46, inevitably, is drawn in broad terms so as not to constrain the degree and nature of protection that may be provided by the secondary legislation that may be made under it. I emphasise the Government's commitment to making this secondary legislation and to providing the adequate protection that it will contain. I hope that the consultation document makes clear intent with regard to the safeguards that the draft orders need to embrace.
	The Government's continued work with the expert liaison group provides further evidence of our determination to provide accurate secondary legislation under what is recognised in the clause to be an enabling power. We of course agree with the noble Baroness that the secondary legislation is of great import. I hope that she agrees that we are approaching this with the greatest seriousness and the fullest consultation on how we intend to proceed.
	Amendment 92 relates to what may happen until an order is made under Clause 48 and is in place. It is the Government's clear intention to have these safeguards in secondary legislation in place at the same time as the relevant property transfer powers in the Bill come into force. The provisions of the secondary legislation will be coterminous with the activation of the property transfer powers of the Bill.
	The consultation period on the document providing draft safeguards has just finished and the Government are working with the expert liaison group to finalise the order. On the procedure for ensuring that the orders are in place in time, I remind the Chamber that the Bill was amended in the other place to ensure that these essential pieces of secondary legislation can, if necessary, be put in place at short notice.
	The noble Baroness referred to Clause 249; she looks forward to reaching it as enthusiastically as I do. It provides that these instruments are put in place via the 28-day affirmative procedure instead of the draft affirmative procedure; in other words, they become immediately valid and implementable unless they are withdrawn by resolution of Parliament within the 28-day period. This applies only to the first time that the powers are exercised.
	I hope that it is clear that the secondary legislation will be put in place at the time that the provisions to which they relate come into force. The noble Baroness will appreciate that we have thought long and hard about this issue since the point was raised in the other place. I hope she will consider that she has had sufficient reassurance to withdraw her amendments.

Baroness Noakes: I thank the Minister for that reply. I understand the Government's rationale in respect of "may" or "shall" in my Amendment 88, in the particular in relation to the way in which Clause 48(2) is drafted. I see that that my amendment is not appropriate there.
	The Government ought not to object to my Amendment 92. If they are in earnest about getting the statutory instrument out coterminously with Royal Assent, no problem would arise. If for some reason the statutory instrument were delayed—there could be many reasons for that; for example, continuing discussions with the parties about it—my amendment would provide a failsafe mechanism which would otherwise not be necessary. It would apply only to deal with legal certainty in that period. I emphasise that a period of uncertainty because the statutory instrument is not in force could cause banks to unwind a whole series of transactions. That would be most unfortunate.
	I regard Amendment 92 as something to be considered further between now and Report. That will depend partly on progress in producing a statutory instrument that is acceptable to all parties. If there is any doubt about that, I may wish to return to the issue. As I have said, legal uncertainty during what might be only a transitional period could be as damaging as legal uncertainty in the whole area. With those comments, I beg leave to withdraw the amendment.
	Amendment 88 withdrawn.
	Amendments 89 to 91
	 Moved by Lord Davies of Oldham
	89: Clause 48, page 23, line 26, leave out "security interests or set-off or netting" and insert "protected"
	90: Clause 48, page 23, line 29, leave out "security interests or set-off or netting" and insert "protected"
	91: Clause 48, page 23, line 33, leave out "security interests or set-off or netting" and insert "protected"
	Amendments 89 to 91 agreed.
	Amendment 92 not moved.
	Amendments 93 and 94
	 Moved by Lord Davies of Oldham
	93: Clause 48, page 23, line 39, after first "to" insert "protected"
	94: Clause 48, page 23, line 43, leave out "security interests or set-off or netting" and insert "protected"
	Amendments 93 and 94 agreed.
	Amendment 95 not moved.
	Clause 48, as amended, agreed.
	Amendment 96
	 Moved by Baroness Noakes
	96: After Clause 48, insert the following new Clause—
	"Report on partial property transfers
	(1) The Treasury must prepare and publish an annual assessment of the efficacy of the safeguards relating to partial property transfers under Part 1 of this Act.
	(2) In preparing each assessment the Treasury must consult the Banking Liaison Panel constituted under section 10.
	(3) If an assessment indicates that the safeguards are inadequate, the Treasury must make proposals for strengthening them.
	(4) Each assessment published under this section must be laid before Parliament."

Baroness Noakes: This amendment would insert a new clause after Clause 48 requiring a report or annual assessment to be made by the Treasury on partial property transfers. We have spent the past hour or so talking about these transfers and it is clear that important issues arise out of them in connection with set-off, netting and other similar transactions. Even if agreement is reached and harmony breaks out between the Treasury and the banks over the next few weeks over what the terms of the statutory instrument should be, we ought not to be in any doubt that this is difficult territory where people may not have worked out what is exactly the right answer. For example, the British Bankers' Association is concerned that practical problems and unintended consequences may emerge which need to be dealt with. That is not to challenge the bona fides of the Treasury in conducting and responding to its consultation, but to state a fact of life about this hugely complicated area. The amendment therefore proposes an annual assessment which, although it may appear to be onerous, addresses such an important area that goes to the heart of whether or not transactions work for regulatory capital purposes, possibly actually destroying the market in the UK, that it needs to be set against the damage that could be done to our banking industry.
	The amendment requires the Treasury to consult the Banking Liaison Panel, the group being brought together for the purpose of looking at secondary legislation, and, importantly, requires it to make proposals for dealing with any aspects that are regarded as unsatisfactory. We have of course included the requirement to publish the assessment and to lay it before Parliament to allow for an appropriate level of involvement should it so choose.
	I hope that the Government will regard this amendment as a practical way forward. If it is accepted, it would take away some of the concerns about getting everything absolutely right either in Clauses 47 and 48 or in the first statutory instrument that will be made thereunder. At least the industry would be satisfied that there is a genuine intention on the part of the Government to keep this under positive review. I beg to move.

Lord Northbrook: I support my noble friend's amendment because it seems eminently sensible that the Treasury should prepare and publish an annual assessment of how good the safeguards relating to partial property transfers are, emphasising that if an assessment indicates that they are inadequate, it must make proposals to strengthen them.

Viscount Eccles: I cannot resist the thought that if such a provision is not included in the Bill, the Merits of Statutory Instruments Committee would find that this is exactly the sort of thing it would like to look at in its annual report. There is unlikely to be any more controversial secondary legislation than this.

Lord Davies of Oldham: The Government fully accept that it is crucial for the partial transfer safeguards to work effectively. That is the burden of this amendment, which calls for an annual report to assess their efficacy. We recognise that partial transfers might be invasive, and have made it a matter of the utmost priority that effective and appropriate safeguards are indeed in place. I hope that the extensive consultation carried out by the Government demonstrates our commitment to working with the industry to get those safeguards right—a key reason for establishing the expert liaison group. The Committee will know that the group is to be put on a statutory footing; the Government will, therefore, be bound to have regard to its recommendations.
	Clause 10, which we considered some time ago, thus provides a mechanism for the Government to receive not annual but regular and expert feedback on what we should consider regarding these issues. Regular feedback is important, but we contend that it will be necessary to update the safeguards over time, with the feedback being crucial in indicating to the Government why they should be changed. That is the basis of the secondary legislation we are bringing forward under the Bill.
	The Government consider it desirable to retain flexibility to adjust and refine the safeguards in the light of experience, particularly in the context of set-off and netting, because those arrangements have proved to be highly innovative and a challenging development. In particular, the latter has developed and evolved in a comparatively short time, illustrating that this legislation needs built-in flexibility to cope with a significantly changing environment.
	Changes to the safeguard may be necessary to ensure that it continues to protect what it was intended to and that innovations do not undermine the policy aims that the special resolution regime is intended to serve. The expert liaison group will continue to advise the Government on the development of secondary legislation related to the partial transfer safeguards, but the Government consider its remit to be wider than that. Clause 10 makes it clear that the group should advise on the secondary legislation in Parts 1 to 3 of the Bill, although, as I made clear in our earlier debate, use of the stabilisation powers and compensation provisions rightly fall outside the group's remit. It is appropriate that the Government continue to consult with the industry over the broad range of secondary legislation made under the Bill—not just on the safeguards, important as they undoubtedly are given the focus of this amendment.
	On the amendment itself, the formal reporting requirement is neither desirable nor necessary. What form of assessment may be made, or may be possible, might depend on whether any resolutions are carried out; the authorities have already committed to report on those resolutions in the draft code of practice. I agree with the noble Baroness when she emphasises that reviewing the safeguards is important, but the Government consider that to be done best through the mechanisms that we are putting in place, particularly the group. That is for two key reasons.
	First, it may be necessary for evaluation and improvement to be undertaken more often than annually. The expert liaison group can meet on a number of occasions during the year, and report to the Government on those matters. Secondly, an assessment by market experts and industry practitioners is important. I note that the noble Baroness shares this view because a requirement for consultation with the expert liaison group forms a crucial part of her amendment.
	As far as Parliament is concerned, any amendment to the secondary legislation in relation to safeguards will be subject to the draft affirmative procedure. Therefore Parliament will have an opportunity to scrutinise and debate the provisions of the safeguards. I hope the noble Baroness recognises that, through her amendment, she has pressed the Government on the nature of the reporting on these developments, which will take place much more frequently than annually, and that Parliament will also play its part with regard to the orders. Surely that is the basis on which the Government should act on what we propose in the Bill. I hope that the noble Baroness will feel able to withdraw her amendment.

Lord Northbrook: At the risk of rehashing an earlier debate, it seems that under Clause 10 the panel can advise the Treasury but there is no necessity for the Treasury to take a blind bit of notice of its advice. Would it not be better and more useful for the assessment to be laid before Parliament? This would create more clarity on how the operation of the system is working.

Lord Davies of Oldham: The Treasury would act in a foolish way if it ignored what the expert liaison group offered to it, particularly as the group will be on a statutory basis, with clearly defined rights and powers, and there will be an obligation on the Government to consult with it and listen to it. However, the final position as far as Parliament is concerned is that the provisions of the safeguards will be scrutinised and debated when the affirmative orders are laid. We will have both a flexible and more frequent forum within which experts can express opinions to the Treasury about developments and necessities in the field, and Parliament will act properly in regard to the orders.

Baroness Noakes: I thank my noble friend Lord Northbrook for his participation in the debate. I agree with him that it would be a good thing to have a public report on these issues, and I shall think about that before Report. In particular, I will think about the role that the Banking Liaison Panel can play in that and whether that is an adequate substitute, which I think is the burden of the Minister's response.
	That will take me back to the wording of Clause 10, which we discussed earlier when we talked about the remit of the Banking Liaison Panel. Clause 10 states:
	"The Treasury shall make arrangements for a panel to advise the Treasury about the exercise of powers to make statutory instruments".
	Between now and Report, will the Minister consider whether the wording of the remit of the Banking Liaison Panel adequately reflects that the consultation will not only be about the exercise of powers but include the effect of existing statutory instruments after they have been drafted and have been through the normal processes? This will be a retrospective look at how they work and it may not be easy to reconcile that with consulting about the exercise of powers.
	We raised earlier the need to reflect the more dynamic role that the Government are saying the Banking Liaison Panel should have but I am not sure that that is accurately reflected in the wording.

Lord Davies of Oldham: I undertake to take that point on board.

Baroness Noakes: I am grateful to the Minister for that. On that basis, I beg leave to withdraw the amendment.
	Amendment 96 withdrawn.
	Clause 49 : Orders
	Amendment 97
	 Moved by Lord Eatwell
	97: Clause 49, page 24, line 26, at end insert—
	"(5) The exercise of a third party compensation order will be based on the principle that the Treasury should indemnify counterparties for any loss suffered by them if their netting and close-out arrangements are undermined by the exercise of the stabilisation powers.
	(6) After a stabilisation power is exercised with respect to a particular bank, counterparties should be allowed to close-out their own hedged and other positions with respect to that bank in order to determine their losses and to make a claim for compensation from the Treasury."

Lord Eatwell: The amendment attempts to come at this vexed question of netting and transfers, especially partial transfers, from a different direction; namely, that of compensation arrangements. These provisions would ensure suitable compensation for those who have netting or set-off contracts associated with a bank that is then the subject of a special resolution regime—compensating them for any losses that they may suffer as a result of the implementation of the special resolution regime. The idea is that, instead of dealing with the difficult issue of clean legal opinion, we say, "Okay, we might not be able to proceed in that direction, but we can provide a compensation regime that will provide comfort and cover some of the uncertainty with which we are struggling and that unfortunately we seem to have introduced while pursuing the laudable objective of developing the special resolution regime". These two provisions deal with the problem through the compensation route. I beg to move.

Baroness Noakes: The contribution of the noble Lord, Lord Eatwell, is interesting. One point raised by lawyers who have looked at this is that, if there was an indemnity, there would not be the need for legal certainty. This would be one way of dealing with the matter. I do not suppose for one moment that the Minister will accept that the Treasury should provide an indemnity for anyone affected by the Bill, but it is a good solution to the problems raised by those who will operate these policies in the City.

Lord Blackwell: I have sympathy with the amendment proposed by the noble Lord, Lord Eatwell, not just for equity reasons, but because, if there is speculation that a bank might be taken into the special resolution regime, it is important that people do not close down positions in advance, thereby precipitating a need to take action. Is the Minister saying that it would be appropriate to compensate counterparties as if the alternative was that nothing had happened and that the bank had continued trading? Presumably in many cases, the Government are intervening only because the alternative would be that the bank goes into insolvency. Clearly, when a bank goes into insolvency, there are procedures by which counterparties can settle their claims legally. One would not want them to get more compensation from the Government than they would in the alternative situation. If one accepts this principle, is there a way of wording this that would require the Government to compensate counterparties only if they could make a case that they were put in a worse position by the Government's action than they would have been by an insolvency action?

Lord Davies of Oldham: I am grateful to all noble Lords, but on this occasion I am most grateful to the noble Lord, Lord Blackwell, who has pointed out some obvious government reservations about the proposal and our anxiety about the extent of what the noble Baroness called for. I refer to the blanket indemnity that the Treasury would be expected to provide, in circumstances where a whole range of actions, including the speculation referred to by the noble Lord, might take place while these activities were going on.
	I am grateful to my noble friend Lord Eatwell for his constructive approach to this issue. He referred to it as a vexed question. I know what he means: as an academic, he means that it is a challenging question for him and a vexed question for the Government. There is no doubt that it is a difficult area, which is why I am grateful for his proposals. We have been working closely with interested parties to ensure the appropriate protection for such arrangements and during those discussions interested parties have told us that the best way of ensuring legal certainty in the market on this matter is to protect set-off and netting requirements through a legislative restriction on disrupting those arrangements, which has been the Government's approach to the Bill. That is why we are putting in place the secondary legislation that will give effect to the powers conferred by Clause 48, and I am confident that we can use this approach to allow the authorities sufficient flexibility to undertake partial transfers while assuaging market concerns regarding netting and set-off.
	The powers that we exercise to provide a safeguard also allow the Treasury to set out the remedy for a breach of the safeguard. The authorities are currently consulting on the appropriate nature of that remedy and we are discussing that both with the expert liaison group and more widely in recognition of the challenges that this issue throws up. The formal consultation ended on 9 January and we are scrutinising the response before finalising policy in this area, which, as the Committee will recognise, is an area of developing policy. We intend that, as far as possible, we will be able to make all these issues clear before the Bill has received its final consideration in the House.
	The order that will implement that policy will be subject to a debate in both Houses. As we mentioned on the previous amendment, the first exercise of these powers will be under the 28-day procedure, which will enable the safeguard for set-off and netting to come into force simultaneously with the commencement of provisions relating to the special resolution regime. Any changes made thereafter can be only through the draft affirmative procedure, so we are ensuring full parliamentary scrutiny of these developments.
	The Bill already has in place arrangements for the assessment of compensation for third parties who suffer a compensatable interference in their property rights by way of the Third Party Compensation Scheme Order in Clause 59, a matter that I have no doubt will be the subject of considerable debate when we reach that point. Where a person suffers a compensatable interference in his property rights contrary to Article 1 of Protocol 1 of the European Convention on Human Rights, which provides that every person is entitled to the peaceful enjoyment of his possessions, provision for compensation must indeed be made. In accordance with that, the assessment of any compensation due must be conducted in accordance with the principles of fairness. The Government believe that the procedure for the determination of third party compensation—for example, through the appointment of an independent valuer—is compliant with the requirements of Article 1 of Protocol 1 and would provide adequate compensation for the purposes of Article 6. Further than that, the Government are seeking to protect all set-off and netting contracts, with the exception of specific carve-outs on which we are consulting.
	We believe that this is the right approach to providing market confidence regarding partial transfers. I am grateful to my noble friend for raising the issue—it gives the Government the opportunity again to assert how important these issues are and how much we are bound with regard to the issue of compensation. However, I bear in mind the point made by the noble Lord, Lord Blackwell, that, in circumstances where significant actions can be taken in the market, the Government have to be circumspect about just how blanket their commitment to compensation would be. It is on that basis that the Government, having considered these matters, prefer the proposals in the Bill rather than the amendment that my noble friend has so helpfully proposed. I hope that he will feel able to withdraw it.

Lord Eatwell: I am grateful to noble Lords who have taken part in this short debate. I am especially grateful to the Minister because he has provided me with the verb that I was searching for in Amendment 80. Noble Lords may remember that my problem was the wording "shall not undermine". The Minister tells me that the Government's objective is that a partial transfer "should not disrupt". I will be very happy to move that amendment again on Report, worded in exactly the way that the Minister has so kindly suggested.
	Turning to Amendment 97, I take the point made by the noble Lord, Lord Blackwell. He is absolutely right. The compensation should not be greater than that which would be encountered in insolvency. I recognise that this is a significant criticism of the amendments as I have tabled them. What the debate has made clear to me is that perhaps some of this compensation route is an appropriate way of dealing with this difficult problem. We need to look at the compensation route in alliance with the other ways that we are attempting to deal with it. Given that the Minister has said that those considerations will continue, and given, especially, his incredible generosity in correcting Amendment 80, which I will now introduce on Report in the Government's own language, I beg leave to withdraw the amendment.
	Amendment 79 withdrawn.
	Clause 49 agreed.
	Clauses 50 to 53 agreed.
	Clause 54 : Independent valuer
	Amendment 98
	 Moved by Baroness Noakes
	98: Clause 54, page 26, line 2, at end insert—
	"( ) An order must provide for the criteria against which a person is to be regarded as independent for the purposes of appointment as an independent valuer."

Baroness Noakes: Amendment 98 adds a new requirement for the independence of an independent valuer to be defined in an order. I had expected that the term "independent valuer" would be defined in some way in the Bill but could find nothing. Independence is of course a term of art, not science. It varies according to the context. It therefore may be difficult to define on an ex ante basis, but ought not to be difficult to define when coming to an individual order. What do the Government have in mind? Will it always be the case that the valuer is independent of the tripartite authorities; that is, the Bank of England, the Treasury and the FSA? Does the valuer have to be independent of any person who could benefit from a compensation order? In the case of widely held securities, how is that to be interpreted if the valuer is, say, a partnership or a company? Will the interests of the valuer's partners or fellow directors, their spouses or other family members, be taken into account?
	How rigorous will the Government be in establishing independence? Does the valuer have to be independent of the bank concerned, or the property or shares being valued, or does that apply to all commercial relationships that might have been entered into between the valuer and the bank or property at some point in the past? Is there a period over which it is to be calculated? Are there to be any de minimis limits? I hope the Minister will see that there is a case for an order being specific as to independence criteria. That would give some comfort to those who would be affected by an order, most notably the shareholders, but also others who are affected.
	If the Minister will not accept my amendment, will he set out for the record how independence is to be established? It may even assist the Committee if the Minister sets out what rules for independence were set for the Northern Rock valuer and what is proposed for the Bradford & Bingley valuer, who I believe will be appointed in the near future. I beg to move.

Lord Higgins: I support my noble friend on this point. It is obviously very important that anyone acting as a valuer should be independent. It may be difficult to find such a person unless we are clear what the criteria are as some people may already have a history in these matters which those affected by a claim for compensation, or who are making a claim for compensation, might think ought to be taken into account. I am also not the least bit clear what the qualifications of such a valuer will be. Are they to be accountants, bankers, economists or whatever? Indeed, will a single individual be adequate to meet the point?
	The other thing that strikes me—it is a simple point—is that the Treasury will appoint someone to appoint the valuer. So the question is not only whether the valuer will be independent but whether the person appointing the valuer will be independent, particularly as he will be appointed by the Treasury. Perhaps the noble Lord could reassure us on that point.

Lord Davies of Oldham: I am grateful to noble Lords who have spoken on the amendment, which raises issues which run through the next two or three clauses; that is, the role of the independent valuer and the provisions relating to that person. I argue that the Bill already clearly spells out provisions to ensure the independence of the valuation process for compensation—which I regard as of the greatest importance—and therefore we do not need further provision on this matter in secondary legislation, as is proposed.
	Clause 54 sets out the provisions for appointing and removing an independent valuer. There was extensive discussion in the other place about the need to make appropriate provision for the assessment of compensation. Compensation may, of course, be required in circumstances where there is a compensatable interference in a person's property rights. Clause 54 provides two safeguards to put the independence and impartiality of the valuer on the strongest footing. First, the appointment of the independent valuer must be made by an independent appointing person. The noble Lord, Lord Higgins, asked who that would be.

Baroness Noakes: I wish to make a small point. The Minister said that the independent valuer would be appointed by an independent person. Unless I am mistaken, that is not what the clause says. Subsection (2) states:
	"An order must provide for the independent valuer to be appointed by a person",
	not necessarily an independent person. Therefore, we do not get independence coming in at that level. An entirely partial person could make the appointment.

Lord Davies of Oldham: We shall certainly ensure that the valuer is independent. We seek to distance authorities from the appointment as far as we can. The noble Baroness appears to be saying that a further safeguard needs to be inserted. I shall look at that but I make it absolutely clear that we seek to take the appointment away from government bodies directly to ensure that the procedure will be carried out by someone who is independent of the authorities in order to further guarantee that the person appointed will be considered independent. The appointing person can either make the appointment having regard to any criteria specified in the compensation scheme order, or must select a candidate from a list supplied by the Treasury. This allows for an independent person or panel to appoint a person who has the appropriate skills and expertise to carry out the process of valuation.
	Subsection (4) ensures that an independent valuer can be removed only by a person specified by the Treasury and on the grounds of serious misconduct or incapacity, ensuring that the independent valuer has security of tenure and a level of independence as far as any removal from office might be concerned.
	Clause 55 provides that the independent valuer may do anything necessary or desirable for the purpose of, or in connection with the performance of, the function of his office in order that he may carry out his role effectively. Clause 55 further provides that the Treasury may confer other functions on the independent valuer. For example, the Treasury may enable the independent valuer to apply to a court or tribunal for an order requesting information from parties, should this be necessary. The Treasury may also enable the independent valuer to publish, disclose or withhold information at his discretion. The clause therefore provides the valuer with the powers to gather and deal with the information that he needs in order to conduct effectively his valuation function.
	Finally, Clause 56 sets out the remuneration procedure. Under the provisions of this clause, the Treasury must appoint a monitor to oversee the remuneration and allowances of the independent valuer, which again seeks to bolster the independence of the valuation process.
	At every stage, the Government have been at pains to ensure that the Treasury is one stage away from decisions that relate crucially to the appointment, performance and remuneration of the independent valuer. We have set out in the primary legislation factors that ensure the independence of the valuer, in particular the conditions surrounding appointment and removal, the powers that we have given, or could give, to him, and the framework for remuneration.
	We believe that these factors will ensure that any valuer is genuinely independent—which is the objective that we seek, in common with the noble Baroness in her amendments—and has sufficient powers to undertake his functions, which in turn ensures the compatibility of the compensation scheme process with Article 6 and provides confidence to the market in the compensation procedures in the Bill.
	As these provisions are included in the Bill—I have identified three consecutive clauses in which this is spelt out in considerable detail—I do not believe that further criteria on the independence of any valuer are needed in secondary legislation. The primary legislation is very clear about the nature of the independence of the valuer and how that will be identified and protected in his actions. I reassure the noble Baroness that the independent valuer will be appointed in accordance with the principles of fairness, as prescribed under Article 6 of the European Convention on Human Rights. Accordingly, the independent valuer will be independent from the interested parties, including the authorities and the Bank, and independent of other conflicts of interest, such as those derived from his own shareholdings. This is a requirement in terms of the international position in the European Convention on Human Rights. Of course, we will be fulfilling that requirement in the way in which the independent valuer is appointed.
	I entirely appreciate the noble Baroness's concerns that this role must meet the strictest standards of independence. We are governed by the European convention and, of course, by our concerns that are shared with the noble Baroness that this crucial role should have its independence guaranteed. That is why so much is spelt out in primary legislation and why we, therefore, do not accept that additional legislative provision needs to be made in secondary legislation. I hope that the noble Baroness will feel that I have given her the reassurance she needs to withdraw her amendment.

Lord Higgins: This matter would seem to have more substance than one might have thought at first. I take it from what the Minister said that he will seek to add a simple amendment to Clause 54(2) on the independence of the person who will make the appointment. He is not a figure of insignificance, given that he is specifically mentioned for remuneration and everything else. Will the Minister consider whether it is appropriate for the appointing person to be appointed by the Treasury, rather than, for example, the Lord Chancellor, or someone of that kind?

Lord Davies of Oldham: We always look with the greatest care at developments in the debates in this House and I will certainly look at that matter. However, the noble Lord, Lord Higgins, will also appreciate that this role will be demanding in the most extensive way and require particular areas of expertise. Therefore, it is not surprising that we regard this rather more as a Treasury matter than one for the Lord Chancellor. However, I take on board the noble Lord's point. I can see the advantages of the additional independence that he is seeking, but he will appreciate that we need to ensure that our appointments to this highly skilled and important role of independent valuer are effective.

Baroness Noakes: When he looks at subsection (2) following the intervention of my noble friend Lord Higgins, the Minister might also wish to consider whether the Treasury will be happy to appoint "a person"; the noble Lord said that it might appoint a panel. My understanding is that a panel is not necessarily a separate legal entity and, therefore, a person. I am not sure that subsection (2) would allow the Treasury to appoint a panel unless it were constituted as a legal entity, which may or may not be the case.
	The Minister spent most of his time talking about independence from the Treasury, which clearly struck a raw nerve, as if that were to be the only thing guaranteed by independence. The main burden of my reasons for tabling the amendment was to ensure that the valuer was independent of the subject matter being valued—the failed bank and the property being transferred—and that the issue was adequately dealt with. The Minister referred me to Article 6 of the European Convention on Human Rights. I need to think about whether simply reading the convention in relation to the Bill is a sufficient set of safeguards, and I shall do that between now and Report. I hope that the Minister will also consider subsection (2) before then.

Lord Davies of Oldham: I will, of course, consider those matters. We are certainly governed by the convention and have to meet clear criteria of fairness with regard to these proposals. However, I reassure the House that in legal terms "a person" can, indeed, include a panel.

Baroness Noakes: That is interesting. I shall consider that further, and I beg leave to withdraw the amendment.
	Amendment 98 withdrawn.
	Clause 54 agreed.
	Clause 55: Independent valuer: supplemental
	Amendment 98A
	 Moved by Viscount Eccles
	98A: Clause 55, page 26, line 37, leave out subsection (6)

Viscount Eccles: I shall be very brief because we have had an extensive discussion about independence, which will very much flow from the drafting of the secondary legislation, to which we have heard reference. I was struck by the word "reconsideration" in subsection (6) of this clause. Are there precedents for the concept of reconsideration? Who does the reconsidering, and would it not be much simpler to reduce the subsection to a short and conventional appeals procedure? I beg to move.

Lord Davies of Oldham: I hope that I shall not be speaking at cross-purposes with the noble Viscount. We had anticipated that he was concerned about another matter—one of some substance relating to the right of appeal. If I have misinterpreted his amendment, I shall stop.

Viscount Eccles: I thought that there was always a right of appeal under common law. I am absolutely not contesting the right to appeal; I am questioning the concept of reconsideration and who would do the reconsidering.

Lord Davies of Oldham: We think that the word "reconsideration", and therefore this part of the clause, is an essential part of the Bill, so I shall invest it with slightly greater significance than the noble Viscount may have anticipated. The clause specifies that a compensation scheme order may provide for an independent valuer to assess the compensation due to those who suffer interferences in their property rights that are subject to compensation as a result of an exercise of the powers under this part of the Bill.
	We do not consider it necessary to put in place a bespoke appeal mechanism to satisfy the requirements set out in Article 6 of the European Convention on Human Rights. The possibility of recourse to judicial review satisfies the convention rights in that regard. However, for general policy reasons, once an independent valuer has arrived at his determination, we believe it is necessary and important that parties affected by that determination are able to ask the valuer to reconsider his decision and that they may appeal it in a court or tribunal.
	It is of course typical in the English legal system to put in place arrangements for the review or appeal of determinations in relation to civil cases. In the case of the arrangements for the assessment of compensation for the former shareholders of Northern Rock, an independent valuer with specialist expertise in commercial valuations has been appointed to undertake the difficult and complex task of valuation. Parties affected by his determination have a right to request the independent valuer to reconsider his determination, which provides an opportunity for the parties to make relevant representations in that regard.
	Following any redetermination, an appeal may be made to the Financial Services and Markets Tribunal, which has both commercial and legal expertise, and is therefore ideally suited to adjudicating over any disputes relating to the valuer's determination.
	We believe that this procedure for appeals is far more satisfactory than simply leaving parties to bring a claim for judicial review of the determination. That is why we consider it entirely appropriate that the Treasury must provide for such arrangements in the event that an independent valuer is appointed. I believe that this provision is an important part of the Bill and I wish to retain it. I hope that the noble Viscount, Lord Eccles, will appreciate that we set considerable store by the part of the Bill which he wants to see removed, and I hope that he will accept the Government's reasons for wishing to retain it.

Viscount Eccles: I apologise. I can see now that my amendment should simply have sought to leave out paragraph (a) of subsection (6). If I understand the Minister correctly, reconsideration of a decision by an independent valuer is to be made, on request, by the independent valuer himself. On that basis, I am completely satisfied and beg leave to withdraw the amendment.
	Amendment 98A withdrawn.
	Clause 55 agreed.
	Clause 56: Independent valuer: money
	Amendment 98B
	 Moved by Viscount Eccles
	98B: Clause 56, page 27, line 11, leave out paragraph (d)

Viscount Eccles: I have tabled this probing amendment in an attempt to understand why we need monitors. In the proposed system, there will be an appointing person, an independent valuer, his staff and monitors, and overall, and at every stage subject to the drafting of the secondary legislation, the Treasury. It all sounds very expensive. Are there precedents for monitors of remuneration and/or compensation schemes, and, if so, in what circumstances? Has the requisite work been done to estimate the cost of all this? For example, judging from a previous debate, a tender might be put out in the search for a valuer and, if so, his remuneration will be set out in a contract. What would the monitor's responsibilities be and who would the monitor be? I suppose that it could be a Treasury official but I guess from previous debates that that is not the intention. Perhaps the monitors are to be chosen, following another tendering procedure, from the private sector. Can we have a fuller explanation of the need for monitors? I beg to move.

Lord Davies of Oldham: I am under constant pressure to show that we are creating a truly independent role for the valuer. The noble Viscount even slipped in that we might have it in mind for the job to be given to someone from Her Majesty's Treasury. That would be somewhat contradictory to the whole thinking behind this role, and I assure the noble Viscount that my notes say something entirely different. For example, a judge might undertake the role on a non-commercial basis. Here, we are concerned only that the Treasury should provide allowances and be responsible for the resources that make remuneration possible. The monitor's role is clear. We want to ensure that there is someone to oversee the valuer's remuneration and allowances, including the pension arrangements, and we want that to be processed as independently as possible. We do not want the Treasury to do this job. Although, as I am sure the Committee will appreciate, it would be more than capable of carrying out such a role with true independence, it might not be recognised among all parties that it was not compromising the concept of independence. That is why the monitor will be required to approve certain actions by the independent valuer—for example, the appointment of staff—and this will be done not by the Treasury but through this additional independent role.
	I merely say to the noble Viscount, Lord Eccles, that we are trying to assuage the very anxiety that he let slip when he introduced the amendment. A Treasury role is always open to being criticised when it comes to the provision of resources. Here, there is an additional independent stage of monitoring, which keeps the Treasury at more than arm's length, and I hope that the noble Viscount will recognise the benign intention behind this concept in the Bill.

Viscount Eccles: Indeed, I can see what the aim is. My problem is only that the Bill becomes more and more complicated and therefore will be more and more expensive to administer and carry out when it becomes an Act. Meanwhile, I withdraw the amendment.

Amendment withdrawn.
	Clause 56 agreed.
	Clause 57 : Valuation principles
	Debate on whether Clause 57 should stand part of the Bill.

Baroness Noakes: I tabled my opposition to Clause 57 standing part of the Bill in order to initiate a short debate about the role of valuation principles in the context of a valuation. My fundamental question is why Clause 57 needs to exist if an independent valuer, who is presumably competent to carry out a valuation, is appointed. I do not object to the content of subsection (3), which ensures that a valuer does not pass on the value of financial assistance provided by the taxpayer to anyone else. That is perfectly correct. I do query, however, why compensation orders might need to be assessed by the principles set out in subsection (2). Those principles could produce a result which was not of value in any ordinary sense. Why, for example, are certain methods of valuation to be ruled out? Why is the valuer being deprived of the use of judgment in the correct methods to use? In what circumstances do the Government expect to use subsection (2)?
	The Minister has been at pains to point out how the valuer will be appointed in an independent way, and one can only assume that the Government will ensure that the person will be of some standing, experience and competence. Under subsection (2), however, the Government can tell us exactly what to do.
	I am also troubled by subsection (4), which is familiar territory to anyone who has been involved with the Northern Rock valuation order. My problem is that if these principles are insisted upon as opposed to applied as relevant in the judgment of the valuer, it may produce a result which is not fair. Fairness was debated in another place. My honourable friend David Gauke moved an amendment in which he tried to introduce a principle of fairness into the valuation process. Unfortunately the Government did not feel able to accept that helpful amendment.
	Let us suppose that a failing bank was hit with the special resolution regime but that the authorities were over-hasty in their judgment. The Minister will recognise that this is a concern that has been expressed in relation to the powers under this Bill; that is why we are particularly concerned about the nature of the hurdle in Clause 7, which we debated earlier. Let us suppose that the valuer finds that the bank was capable of operating as a going concern on plausible assumptions. Or let us assume that he finds that administration would not have been an appropriate basis for action. Subsection (4) allows the Treasury to specify a counterfactual. If the authorities had been over-hasty, there would be a strong incentive for them to use subsection (4) in order not to let the correct position emerge.
	It would be wholly inappropriate to debate the specifics of the Northern Rock case in view of the current legal action. The Minister will be aware, however, that shareholders, and not just the hedge funds, felt strongly that their assets were being expropriated and would not be correctly valued because of the application of the valuation principles which were insisted upon in that valuation order. It is not implausible that this could happen if the powers were used in future. In addition, the existence of the power of the Treasury to specify a valuation assumption, perceived by others to be unreasonable, seems likely to lead to a string of judicial reviews, if nothing else. All in all, it seems fairer and, indeed, more efficient in valuation terms to leave everything to the valuer's judgment. I look forward to the Minister's response on why the Treasury needs the powers set out in Clause 57.

Viscount Eccles: Will the Minister assure the Committee that the compensation scheme order referred to in Clause 57 would be in place before the appointing person sought a valuer? One can imagine situations, following on from the exposition of my noble friend Lady Noakes, in which a potential independent valuer declined to bid on the grounds that they would not have true independence. That might well depend on the detail in the order.

Lord Higgins: Effectively, the valuation principles which the independent valuer will have to use may, as my noble friend has just pointed out, be in conflict with the views of the independent valuer. More particularly, the compensation scheme order, again set out by the Government, will presumably specify what the principles are which the independent valuer has to apply. In short, the Treasury is writing the rule book. The independent valuer is told he has to do this or that, apply average values or on specific dates, and so on. This seems to be far more restrictive than ought to be the case. The matter ought to be dealt with by the independent valuer; I should have thought that there is a well established body of opinion on how this ought to be done.
	Like my noble friend Lady Noakes, I have some doubts with regard to subsection (4). It says:
	"Valuation principles may require or permit an independent valuer to make assumptions; such as, for example, that the bank—
	(a) has had a permission under Part 4 of the Financial Services and Markets Act...varied or cancelled".
	I would not have thought that this is something one makes an assumption about. I would have thought it is a fact: either such an order has been varied or cancelled or it has not. If not, I do not see that the independent valuer can then be compelled to say otherwise.
	Similarly, while I can see that one may need to make assumptions about whether a bank is able to continue as a growing concern—that seems reasonable—it seems odd to make an assumption about whether it is in administration. I would have thought it either was or was not in administration. The same applies to being wound up: I should have thought either it is being wound up or it is not. I simply do not understand what subsection (4) has to do in relation to an independent valuation of what needs to be paid to compensate those affected by the action which has been taken.

Lord Norton of Louth: I understand why this clause has arisen but, like other noble Lords, I have come to the conclusion that the Bill probably does not require it. The issue I have most sympathy with is whether the valuer should be required to make the determination of whether the bank would have been viable in the absence of government action. That is a decision which, under the Bill, we are requiring the FSA, in the first place, to make. The independent valuer is required to rely on the judgments that have been made but, in fact, under Clause 7, the institution will be in this process only if the FSA has determined that it does not pass, or is unlikely to pass, the threshold requirement of continuing as a financial institution. In effect, therefore, the valuer can start with the presumption that it is not a viable ongoing entity without this being spelt out by the valuation principles.
	The other aspects of the principles that the Treasury or others might want to put to the valuer are perfectly reasonable parts of the evidence that the valuer would be perfectly entitled to take into account. They do not need to be laid down as principles which are required to be taken into account. The problem is that, in order to satisfy the Treasury that all these principles are going to be considered, the clause leaves open such wide scope for the valuer to be dictated to that the whole notion of an independent valuer begins to be undermined.
	If this clause is to remain in the Bill, I should like to understand how the dictation of these valuation principles affects any grounds of appeal. Would an appeal be able to take account of whether the valuation principles that had been dictated were appropriate, or would it have to start from the basis that the valuation principles were outside the appeal process?

Lord Stewartby: I hope that the Minister will have another look at this clause in the light of this debate and the points that have been raised. I think that one matter of language could be improved. When I first read Clause 57(3), I was confused as to what was to be disregarded. The text says that,
	"an independent valuer must disregard actual or potential financial assistance provided by the Bank of England or the Treasury (disregarding ordinary market assistance offered by the Bank on its usual terms)".
	I was not sure whether this was a double negative, so I looked at the Explanatory Notes, which say, in paragraph 147 on page 22, that the subsection requires the valuer,
	"to disregard actual or potential financial assistance provided by the Bank of England or the Treasury (other than ordinary market assistance offered by the Bank on its usual terms)".
	The language in the Explanatory Notes seems clearer and would be more easily understood than the text in the Bill. It is only a small change of a word or two, but it would remove the ambiguity.

Lord Davies of Oldham: On that last point, if that is what the Explanatory Notes achieve, we will look at them with a view to amendment. I am not sure that I agree with the judgment of the noble Lord, Lord Stewartby, on that point, but I will reserve my position, look at the matter carefully and act accordingly if he proves to be right.
	Several of the representations that have been made have been founded on a basis that is contrary to the Government's thinking on this clause. Although issues were raised on matters of detail, I am not too sure that we are not colliding on a matter of principle. The clause is being attacked because it is thought that it somehow compromises the independence of the valuer, which we were at pains to establish when we were discussing the earlier clause. That view has been translated into the belief that the valuer is bound to have his independence affected because of the role reserved for the Treasury in this clause. I just do not accept that. The independent valuer will be established on the criteria of independence that we discussed at length only a few moments ago, but he will work within a framework established in law, as indeed he should.
	Let me get this clear. Are noble Lords who have spoken about this critically suggesting that the independent valuer should approach the issue as if no public resources of any kind were at stake? We are talking about a situation in which a bank or financial institution is in such serious trouble that action has had to be taken. That action may have involved—indeed, it is likely to have involved—considerable resources of public money.
	The Government are concerned to ensure that the evaluation criteria take account not of the double negative that the noble Lord, Lord Stewartby, suggested existed; there is no double negative, as it is absolutely clear what has to be taken into account. What the valuer cannot do is identify the value of the institution as if the authorities had not put in any resources to support that institution. That cannot be contended. In the evaluation procedure in this Bill, there were bound to be criteria relating to the safeguarding of public resources. I venture to say that if this Bill had been introduced by an opposition Member, opposition Back-Benchers would not be voicing criticism of this proposal, as they would be four-square with the necessity of having such safeguards.
	Of course the Treasury may specify valuation principles to which the independent valuer must have regard when conducting the exercise to assess the amount of compensation, if any, payable in respect of a transfer of powers. That is a cardinal principle behind the concept of the action that the Government are carrying out under special resolution procedures. The valuer must disregard,
	"actual or potential financial assistance provided by the Bank of England or the Treasury",
	to the failing bank, as to include that in the framework would make the bank look more valuable and more viable than it could possibly be if it were not for the public interest at stake because of the resources committed. That is the significant point that I want to establish with regard to these issues, although I recognise that noble Lords have made a number of additional points about the scheme.

Baroness Noakes: It may help the noble Lord if I remind him that I specifically did not challenge subsection (3). I am not at all sure that it is necessarily the case in every valuation that significant public resources will have been committed to the organisation; it is quite possible that a bank will not have received any financial assistance before being put into the special resolution regime. I said that I did not challenge subsection (3), although I accept that some of my noble friends have done so. The Minister said that some additional points had been raised. The only points that I raised were other than in relation to subsection (3), so I hope that he will respond to them.

Lord Davies of Oldham: I intend to do so. The noble Baroness will have noticed that I commented on other contributions to the debate but not on hers; I had not addressed myself to her comments and was in no way, shape or form including her within the framework of my remarks.
	The Treasury may need to specify assumptions that the independent valuer must take into account in conducting the valuation exercise. These principles set out the parameters that the independent valuer must adhere to in making his determination. This in no way undermines the independence of the valuer. The European Convention on Human Rights recognises that such parameters may be established by the state in circumstances where compensation arrangements are being considered and where the state has been active in terms of public resources.
	I emphasise that I am seeking to defend properly, as I was seeking to do in relation to the earlier amendments, the independence of the valuer, while stating that Clause 57 accurately outlines the parameters within which the valuer is bound to work.
	Without the clause, the work of the independent valuer would have to take place with no principles or parameters. That would surely be open to the sharpest of criticism. I point out that the detail of the valuation principles, which will be set out in a compensation order made about a bank resolution, would be subject to full parliamentary scrutiny through the affirmative procedure. I reiterate the obvious point that parliamentary scrutiny is necessary for the order. That is an important part of the legislation.
	I emphasise that the clause is a crucial part of the legislation. It is consistent with the European Convention on Human Rights. We have considered the provision with the greatest care. We are working within that framework. If we did not have parameters on which the independent valuer—I hope that in our discussion on previous clauses we have established the independence of that valuer—would act, the Bill would be severely deficient. I emphasise again how important that provision is to the Bill. I hope that the noble Baroness accepts that point.

Baroness Noakes: The Minister has not explained why, in his words, the Treasury "may need" to specify assumptions. What need is there? The Minister said that valuations need parameters. Why do they need parameters? If you appoint an independent valuer to value X, why can the independent valuer not go away to evaluate based on the facts and on ordinary valuation principles?
	We have to remember here that the Treasury is specifying some powers in granular detail, such as how to use averages or which valuation methods to use. We are not talking about high-level issues; we are talking about some very detailed matters. The Minister has not explained why the Treasury needs to do that, why parameters have to be set and why the Bill would be lacking if it did not contain those subsections.

Lord Davies of Oldham: I do not have a great deal to add, apart from the obvious fact that we are not talking about valuations in an exercise of dispute between two private individuals or personages. We are talking about valuation in the context where the state has acted, and may have acted with a substantial commitment of public funds. Within that framework, it is inevitable that the independent valuer, set up with all the clear protection of his independence that I have identified, will work within parameters to protect public resources.

Baroness Noakes: I will not delay the Committee further, because we have other business this evening. However, the Minister says that significant resources may have been put in by the Government but they may not. I have accepted subsection (3), which includes the financial assistance assumption, which seems perfectly reasonable to protect the interests of the taxpayer, but the Minister has not made a case for any other valuation principles being established. We will clearly need to revisit this again on Report but, in the mean time, I withdraw.
	Clause 57 agreed.
	House resumed.

Financial Markets
	 — 
	Statement

Lord Myners: My Lords, with the leave of the House, I will now repeat a Statement made in another place by my right honourable friend the Chancellor of the Exchequer.
	"The House will, I hope, understand that it was necessary to issue a market notice this morning, in the usual way.
	In the past few months, our priorities have been, first, to prevent the collapse of the banking system; secondly, to support the economy; and, thirdly, to ensure we get lending going again. This is also a problem faced by Governments across the world—and it is therefore necessary to achieve the maximum degree of international co-operation. We are taking steps not just to support the banking sector but, importantly, to safeguard the millions of jobs that could be put at risk by the continuing difficulties in the international financial system.
	Restoring the banks' ability to lend is an essential part of the economic recovery so today I am proposing further measures to meet two objectives: first, to begin to replace the lending capacity lost by the withdrawal of foreign banks and other institutions; and, secondly, to remove the barriers preventing UK banks expanding their own lending.
	I want to set out these new measures in the context of the strategy we have put in place to steer the country though the worst global economic crisis for generations. Over recent months, banks have faced increasingly difficult conditions, as we have seen everywhere around the world, with Bank of America rescued last week; Citigroup, one of the world's largest banks, broken up; Anglo-Irish nationalised; Commerzbank rescued in Germany and, today, the Royal Bank of Scotland reporting substantial write-offs.
	Last October, faced with the potential collapse of the banking system, we recapitalised the banks, strengthening their position. As a result, the Government took temporary stakes in two British banks but, as I said then, we have a clear view that British banks are best managed and owned commercially and not by the Government. That remains our position. As a result of the action we took, no savers in UK banks have lost money.
	In the Pre-Budget Report, I announced substantial extra help for people and for businesses—lower income tax, more capital investment now and lower VAT—which, hand in hand with interest rate cuts and lower inflation, will support the economy and jobs. There is a clear international consensus that putting money into the economy now to counter the recession and to help people is the right thing to do. The cost of doing nothing would be substantially greater.
	In almost every country, fiscal expansion policies have now been agreed—including in Germany only last week. In the US, President-elect Obama has already signalled the scale of their fiscal expansion. But, as the President-elect said only yesterday,
	'restoring the economy requires that we maintain the flow of credit to families and businesses'.
	In the UK, the total amount of lending available still falls short of meeting the needs of the economy. Over the past 10 years, lending by foreign banks and non-bank institutions accounted for more than half of new corporate loans and 45 per cent of new mortgages here. A significant amount of lending capacity—by these foreign-owned banks and specialist lenders for example—has been withdrawn or has returned to their home markets, demonstrating again the need for co-ordinated international action.
	On top of that, in the past few weeks, the world economic downturn has intensified everywhere—in the US, in the euroarea, and now spreading to Asia, including China—all seeing weaker production, companies in trouble and fewer jobs. As we go into what will be a difficult year, dealing with this global financial crisis will need continuous effort.
	There is no single remedy; there is no instant solution. We will need a range of measures designed to support lending, help businesses and protect jobs. Together, my measures today remove uncertainty and accelerate a resumption of lending—a necessary precondition for recovery here and around the world.
	There are three measures to address the capacity reduction in the banking sector. First, because of current conditions, companies are finding it harder to get loans. So the Government have today authorised the Bank of England to create, for the first time, a new £50 billion fund, which will help increase the amount of funding available to companies by purchasing corporate assets from the banks, enabling them to invest. This will help large companies and complement the substantial measures announced last week by my right honourable friend the Secretary of State for Business, Enterprise and Regulatory Reform to support small and medium businesses. This fund will buy assets from banks, financial institutions and financial markets, with finance provided by the Treasury. The Treasury is also supporting the fund with an indemnity. It will initially purchase high-quality private sector assets, like corporate bonds, commercial paper and syndicated loans, which companies use to finance their business. The assets purchased by the Bank of England will be good quality investments which will eventually be sold so that taxpayers' interests are protected. This will enable larger companies to get the funding they need at a lower cost.
	The operating remit of this scheme will be set by the Government but it will be run on an independent basis by the Bank of England. When purchasing these assets, the Bank of England will ensure the total amount of money in the economy does not increase. In future, the Monetary Policy Committee will keep under review whether this facility could be used as an additional way for meeting the inflation target, in line with similar operations at the US Federal Reserve. In such circumstances, I will decide the overall scale of the scheme and I will also keep the House informed.
	Secondly, in order to maintain some of the capacity being lost in the mortgage market, I have decided that Northern Rock will no longer pursue a policy of rapidly reducing its mortgage book. In addition, looking at when the housing market recovers, I am considering whether—and, if so, how—Northern Rock or other UK lenders can best support prudent lending to creditworthy customers who will need mortgages but can only afford deposits less than 25 per cent.
	Thirdly, in order to ensure that RBS, which owns NatWest and a number of other banks, can continue to support lending, I am taking action to strengthen its position. When the Government purchased their stake in the bank in December, a new management team was put in place. The company have announced further losses today, many of which are associated with its investments in the US following their takeover of a Dutch bank, ABN, in 2007. So I have agreed to their request to convert the Government's stake of preference shares into ordinary shares. The Government could now own up to 70 per cent of RBS. In return for this, we have agreed with it an extension of lending commitments to large companies and an increase in lending of £6 billion in the next 12 months.
	As well as taking action to maintain lending capacity, I want to remove some of the barriers and uncertainty preventing the existing banks lending further. In return for this, we intend to negotiate with each bank a lending agreement. These agreements will be specific, covering both the quantity and type of lending made available to people and businesses across the country, just as we have done with RBS today. These commitments will be binding and externally audited.
	In return, banks will get access to support measures. First, under a new scheme the Treasury will insure certain bank assets for a commercial fee against losses on banks' existing loans. The purpose of the protection is to allow the expansion of lending, so the pricing has to be fair and reflect all our objectives. The banks' problems stem from uncertainty about the value of their assets. Faced with this uncertainty, individual banks are reluctant to lend to businesses and companies. This will reduce the banks' exposure to risks and give them the room they need in order to lend more. We will insist on the highest international standards of public disclosure and transparency in the operation of the scheme. Countries all over the world are considering similar proposals. We will work with them to take action together.
	The second step towards removing barriers to lending is an expansion of the funding capacity of financial markets. The credit guarantee scheme I announced in October will be extended beyond its current end date of April this year. Instead, it will run until the end of 2009, subject to state aid approval. This scheme guarantees new unsecured borrowing. So far over £100 billion of these guarantees have been taken up. These guarantees have been successful in helping bring down the interbank lending rate from 6 to 2.25 per cent. To complement this, the Bank of England will continue to provide similar types of liquidity support when the special liquidity scheme expires at the end of this month. Until recently, up to half of UK mortgages were funded from the wholesale markets. At the time of the Pre-Budget Report I accepted the recommendations in the Crosby report on mortgage finance markets. I have announced that the Government will provide up to £50 billion of guarantees, initially on new mortgage lending and eventually on other assets. Overall, the liabilities taken on will be backed by financial assets and fees will be charged for guarantees and insurance, safeguarding the taxpayers' interests.
	Thirdly, the Financial Services Authority has today set out its policy on capital requirements. It has set out the level of capital that individual banks need to keep on their books to allow them to withstand the slowdown and maintain lending. It will be a key signal that banks should allow their capital to be used to absorb the losses from investments, while not unnecessarily restricting their lending.
	The regulation of capital is fundamentally an international matter and tomorrow I will present our plan to European Finance Ministers in Brussels. I hope we can agree similar proposals there. Because this financial crisis is affecting every country in the world, it is crucial that other countries also take steps to support their banking sectors. We cannot risk a damaging worldwide spiral of weakened confidence and national-only policy decisions. Stronger international collaboration will be strengthened with the arrival of the new US Administration. We must not give way to financial protectionism which could be every bit as damaging now as it was to trade in the 1930s. Instead, we must look at the causes of this international financial crisis. We must strengthen the supervisory and regulatory system here and internationally. I shall publish proposals on the regulatory framework for the banks in the spring together with the FSA's own review. Internationally, we will be actively pursuing this as part of our presidency of the G20 through 2009. Our objectives in the G20 will be to continue to take action jointly to support the world economy, to act together to restore the flow of credit and to improve the international regulatory regime. This is a continuing effort. Countries all over the world are united in supporting their economies, maintaining lending and protecting jobs. We are ready to do whatever it takes".
	My Lords, that concludes the Statement.

Baroness Noakes: My Lords, I thank the Minister for repeating a Statement made by the Chancellor in another place. I also thank the Government for finally recognising, de facto if not in terms, that their action last October was far from sufficient to save the banks, let alone to save the economy or, to use the Prime Minister's memorable phrase, "to save the world". The Government accompanied their October announcements with a lot of fierce words about banks resuming lending. The banks did not do so. The lack of credit in the economy is accelerating the depth and length of the recession in which we find ourselves after a decade of irresponsible and reckless economic management. Of course there is a global banking crisis but the way that it is hurting our economy is a direct result of economic management, or indeed mismanagement, of the last decade. So we start with an economy that is not well prepared for a downturn and this has been exacerbated by a lack of credit to support it. Instead of concentrating on credit, the Government embarked on futile gestures, such as the VAT reduction, which has had absolutely no impact. So we must be grateful that the Government are now focussing on the real issues.
	We support much of what has been announced today, though with some provisos. We have argued for a long time that the use of preference shares carrying a coupon of 12 per cent was counterproductive in the original package. It positively worked against increasing lending. At least the RBS will now be freed from that. The Minister said nothing about the similar millstone around the neck of Lloyds TSB/HBOS. Will he do so? Is it that Lloyds TSB does not want any more equity shares to be held by the Government, with which we could have some sympathy? If so, what will that mean for Lloyds TSB's lending?
	What impact will today's Statement have on government borrowing and debt figures, which are already at record levels? To put it another way, how much more taxpayers' cash will be paid to the banks? The asset purchase facility appears to involve further borrowing of £50 billion. How much else is involved? Related to that, will the Minister say more about the Bank of England asset purchase facility? We are told that this is to buy high-quality corporate debt, but investment-grade borrowers have access to finance at the moment; the problem is borrowing below investment grade. How will this affect the borrowing for corporates that are below investment grade?
	The first £50 billion will be funded by Treasury bills, but this morning's announcement opens the way for the MPC to use asset purchases for monetary policy purposes. Will the Minister confirm that this means that the Government are opening the way for quantitative easing, or, in ordinary parlance, for printing money? We can see that, in extremis, quantitative easing may be necessary, but it will be the most damning indictment of the Government's handling of the economy if it comes to that.
	Secondly, how is the MPC involved in this? The committee has no control over the Bank's printing presses. Do the Government intend to change the monetary policy remit of the Bank of England? If so, how, and when will they do so? What mechanisms will be involved, and, more importantly, what involvement will there be for Parliament?
	On the contingent liabilities that will come with the Statement that the Minister has repeated, will he say how much is at stake for the taxpayers in a worst-case scenario? There are virtually no figures in the Statement. The Chancellor denied on the radio this morning that this was a blank cheque, but how do we know, because the Government will not give the figures? Is there any limit on the amount that will be exposed in the economy as a result of this Statement?
	We have concerns about the open nature of the plans that have been announced today. I have some detailed questions for the Minister on the asset protection scheme. The press release that was referred to this morning talked about information on the assets being made available to the Treasury, but no mention was made of such information being made available to Parliament, and since this is an open-ended commitment, it is important that proper information is set up. We have called for a full and independent audit of what the taxpayer is now being asked to ensure. What is being done to value assets before their risk passes to the taxpayer?
	The vehicle for the asset protection scheme may well be an entity that is established or designated by the Treasury. We have seen with UK Financial Investments how the use of a special vehicle that is set up by the Treasury lacks a specific statutory accountability framework, which means that what happens within that organisation can be very difficult for Parliament and others to track. Will the Minister commit to ensuring that full accountability of that body to Parliament is established? The Statement this morning was not stuffed full of detail; nor was the Minister's repetition of it. It is clear that much still remains to be decided. When will full details of this scheme be made available?
	The test of this package will be whether credit is restored to the economy, but it is important that lending is realistic and not of the reckless variety that helped the banks to get into the mess that they are in. Most commentators believe that the valuation of the housing market has not yet reached its trough. To what extent is it not reckless to encourage individuals to start borrowing again when values are still going down? The Statement referred to Northern Rock starting to lend again. I am not at all sure that using a state-owned bank that was not known for prudent lending practices is a particularly good vehicle for that, but will the Minister say what instructions the Government are giving to Northern Rock on its lending criteria and how much they will allow it to lend?
	More generally, allowing mortgage-backed borrowing by the banks, as recommended by Sir James Crosby, will be acceptable only if it means meeting the standards of transparency and quality that the Government set out today. The Minister said that £50 billion will be available. How does that compare with former volumes of mortgage-backed securities? What impact will this have on the market? We would be concerned if this scheme were so large that it led to a return to the price inflation and lending criteria that got the banks into this mess in the first place.
	Lastly, the Statement referred to the FSA's separate statement on capital ratios. Will the Minister explain the reference in that statement to amending the variable scalar method of converting internal credit risk models? Will this allow the banks to reduce their risk-weighted asset requirements, as commentators have suggested, and hence to reduce the amount of capital that they are required to hold? Does that not leave the way open for our banks to become even riskier than they are already?

Lord Newby: My Lords, I am grateful to the Minister for taking time out from the Banking Bill to repeat the Statement. It is, however, a very depressing Statement, because it makes it clear that the banking system is in even greater crisis than was apparent in the autumn, that it is creating a real economic crisis of alarming and growing proportions, and that the first bail-out was completely inadequate. We obviously hope very much that this bail-out is more successful. The Statement, however, gives rise to as many questions as have been answered, and I hope that the Minister will not mind if I ask him a few questions now.
	The Minister points out quite correctly that there has been a dramatic fall in the capacity of the banking system because the foreign banks have largely withdrawn their lending. Have the Government assessed the quantum of lending that has disappeared from the UK financial sector, and has that figure informed the amounts by which they are now asking the banks to increase their lending?
	Secondly, will the Minister confirm that the £50 billion of net assets that are being available will be funded by an increase in government borrowing? As the noble Baroness, Lady Noakes, said, this is another £50 billion to add to the ledger. When he says that the Monetary Policy Committee will keep under review whether this facility could be used as an additional way of meeting the inflation target, can he explain what on earth that means? Again, as the noble Baroness asked, can he explain whether we will need an amendment to the Bank of England Act to change the MPC's formal remit to do that?
	We welcome the fact that Northern Rock will no longer pursue a policy of rapidly reducing its mortgage book. Does that mean that it will carry on reducing its mortgage book, or will it seek to increase it, given that the Government will encourage it and other lenders, in a manner about which we are yet unclear, to make mortgages available to those who can afford deposits of less than 25 per cent?
	The Government now own 70 per cent of the RBS. Does that not mean in effect that it is a nationalised bank, and would it not be more straightforward to turn it into a state bank so that the borrowing and lending policies that it pursues can explicitly follow public objectives? The RBS is in a slightly bizarre situation in that the Government are directing it to make specific policy changes to its lending while professing more generally, and certainly in the context of the Banking Bill, that when they take shares in banks—and particularly when they take over a bank—they will do so at arm's length. They profess this; yet we have a detailed proposal from them on how the RBS will extend its lending activities in the future.
	On the other banks covered in the Statement, the Government have undertaken to negotiate a lending agreement with each bank. Will all the banks agree to such a lending agreement? What will the sanction be if they do not? There is a problem in reaching these agreements and putting in place the new scheme to insure, as the Government coyly put it, "certain bank assets". How do you value these bad assets? Values in, for example, commercial property are still plummeting. When the Government say that countries all over the world are considering similar proposals around bad assets and that we will work with them to take action together, are they seeking to find a common basis for valuation? Or are they just going to have a chat with all the countries doing similar things?
	On capital adequacy, it seems that the FSA and the Government have accepted that the current capital adequacy rules are inadequate. Are they in effect tearing up the bar rules unilaterally, or is the Chancellor going to Brussels tomorrow to ask that they be revoked, set aside temporarily or replaced? It is not clear from the Statement.
	Finally, what in broad terms does it mean when the Government say they will publish proposals on the regulatory framework for the banks in the spring? Might they, for example, be contemplating a Glass-Steagall approach, or is this just a raft of technical issues?

Lord Myners: My Lords, I gave up counting the number of questions asked in 13 minutes and doubt whether I will be able to answer them all in the customary seven minutes that remain. I will do my best. This is an important announcement, following the announcements made in October that were highly effective in reassuring customers and depositors of British banks of the strength of those banks and their ability to honour their commitments.
	Contrary to the comments of the noble Baroness, Lady Noakes, banks have continued to increase their lending in a number of important areas. In the various meetings I had over the weekend with most of the chairmen or chief executives of our British banks, a number expressed considerable confidence about the outlook for lending in the United Kingdom. This is in the light of action taken by the Government—in both the Pre-Budget Report, as a consequence of lower interest rates and, importantly, because of the measures we announced this morning.
	The noble Baroness questioned whether we were in a strong enough position economically to cope with these extraordinary changes. I remind noble Lords that these are global challenges. As I and the Chancellor of the Exchequer have said, there is no economy in the developed world, or indeed in the major developing economies, which is not now experiencing significant contraction in output and demand. Yet in six of the past seven years the United Kingdom was either the strongest growing or second strongest growing economy in the G7. Over the past 10 years, we achieved the highest growth in GDP per capita in the G7. We approach these challenges from a position of considerable strength after the achievements of the past decade.
	The noble Baroness asked about the Lloyds Bank Group and the "millstone" of preference capital. The preference capital was agreed with the board of Lloyds. It may well reflect on changed circumstance and wish to talk to the Treasury and the UKFI. If it does, those representations will be received.
	On the impact of today's Statement and in particular the amount of cash that is going to the banks, the strong feature of this announcement made by my right honourable friend the Chancellor of the Exchequer is that it involves little cash. The exchange of preference shares for ordinary shares is a non-cash item. The attachment of guarantees in accordance with Crosby is a non-cash item. The extension of the discount window facility at the Bank of England is a non-cash item. The extension of asset protection through an insurance scheme is a non-cash item at first. It may be a cash item in due course; that would depend on the experience of the insurance policy and would have to be offset against the premium received.
	The noble Baroness asked whether we are giving a blank cheque to the banks. That is not the case. On the contrary, establishing the asset protection scheme will take six to eight weeks. It will involve a huge amount of data analysis. I envisage well over a billion items of individual data reviewed for each bank that approached us in that connection. We will be drawing on the support of external advisers—accountants, actuaries and lawyers. We will determine appropriate attachment points based on value-at-risk calculations and ensure that the premium reflects the risk, taking into account the lending commitments we would receive from the bank as a consequence.
	The Bank of England asset purchase facility will involve investment-grade bonds. The noble Baroness lives in a different world from me in her assertion that investment-grade corporations have no difficulty obtaining loans. That is simply not the case from the contact I regularly have with the finance directors and chief executives of major companies. The appetite for banks to lend to major corporations has deteriorated substantially. The measures we have taken will address that.
	This is not a prelude to quantitative easing, but it creates the architecture that would be needed for that. If the Bank of England and Monetary Policy Committee conclude that that is the right thing to do, an appropriate framework will be set in place. That would include an exchange of letters between the Chancellor of the Exchequer and the Monetary Policy Committee. The noble Baroness does not reject the concept in certain circumstances—presumably at a point where interest rate reductions no longer have the effect they otherwise previously did at higher levels. There will not be a need to change the Bank of England Act.
	There were observations about the lamentable record of Northern Rock management, disregarding the fact that the management of Northern Rock has changed. The current instruction to the board of Northern Rock is that it should no longer regard its asset book as in run-off.
	The noble Lord, Lord Newby, asked for data on the extent to which foreign banks' withdrawal is impacting on the availability of credit. It is quite significant in particular sectors of the market. The withdrawal of the Icelandic and Irish banks, the ending of securitisation and a general retreat to home which tends to happen in these circumstances have meant a serious reduction in credit availability. This programme is designed to address that.
	The noble Lord also asked whether the Royal Bank of Scotland is now a nationalised bank. No discussions with the Royal Bank of Scotland have ever discussed nationalisation. The Chancellor was clear in his Statement to the other place that he regards our banks as best owned in the private sector. However, with the board of the Royal Bank of Scotland and other shareholders, we have commenced a programme to improve the quality of management and leadership there. Noble Lords will no doubt have seen the appointment of Sir Philip Hampton to join Mr Stephen Hester as respectively chairman and chief executive of that bank.
	Questions were asked about the Crosby review and the guarantees. Again I remind noble Lords that the attachment of guarantees to residential mortgage securitisations does not involve a cash payment. It enhances the quality of the credit and is a non-cash cost. Crosby was very clear that he did not believe that this programme would create any costs for the Exchequer, but rather would be a source of income. We have also committed, as a part of this programme, to ensuring that London becomes a centre for a new form of securitisation that departs from the weaknesses and failures of the last, which did not have appropriate disclosure or risk sharing.
	I hope that I have managed to respond to most of the questions put by the noble Baroness and the noble Lord.

Lord Elystan-Morgan: My Lords, the accusation has been oft repeated that there was indeed a failure three months ago on the part of the Government to make the bail-out of a proportion sufficient to be effective. Is the Minister satisfied that those banks that have received massive subventions from public funds have, since the beginning of October last year, been entirely candid with the Treasury and the Bank of England with regard to their contingent liabilities? I shall put it another way. Is this latest crisis due in any way to the deliberate failure to make a full disclosure of those liabilities, or is it due to unforeseen and unforeseeable events?

Lord Myners: My Lords, the action taken in October was not a bail-out; it was designed to put beyond reasonable doubt questions about the capitalisation of British banks. Issues around asset valuation are primarily for boards of directors and external auditors to address. Nearly all our major banks have a December year-end, and they will now be going through the process of completing their accounts. The Royal Bank of Scotland made it clear that its announcement this morning of quite frightful losses was a consequence of that work. It is absolutely incumbent on boards of directors, particularly chairs of audit committees and external auditors, to be clear on the need to be honest about the state of the assets they own.

Lord Barnett: My Lords, we are in danger of forgetting that this stems from the incompetence or even worse of bankers who, to some extent, the Government are now depending on to run the banks. The losses are so huge that frankly we do not know what they are, and indeed I am not sure that anyone knows. Certainly I am not sure that the directors of these banks, their auditors, Ministers, or anybody else can answer questions about values because we know what has happened in the past. Clean certificates were issued by auditors but, days or perhaps weeks later, billions were written off. The situation is so incredible that it is hard to believe. If we do not know the figures, is not there a real danger that guaranteeing the banks could be self-defeating in the sense that once the bad and slow payers know about it, they will become even slower so that situation is even worse, and we will see real bad debts, not possible bad debts?
	The Government now have 100 per cent control of some banks and at least 70 per cent of others. We assume that that is the end of it, although one begins to doubt if it will be. I appreciate their desire to leave the running of these banks to at least some bankers, although again, I am not sure which ones. Can the Minister tell us whether any of those bankers who decided to buy ABN AMRO and now have to write off God knows what—£10 billion or £20 billion—are still going to be allowed to run their banks at arm's length? Is it really the case that the running of banks in which the taxpayer has more than a 70 per cent interest as well as interests in the form of guarantees and insurance is going to be left to those self-same bankers? Is that really the Government's decision?

Lord Myners: My Lords, many of my noble friend's questions focus on the Royal Bank of Scotland. I remind noble Lords that very significant changes have been made to the leadership of that bank. A new chairman is to be appointed and a new chief executive is in place. Two or possibly three of the executive directors have left, and there is a general agreement that the board needs to be further refreshed. Certainly, very serious questions need to be asked not only by the board of directors and the senior management of some of these businesses, but also by institutional investors who, from my recollection, voted—inasmuch as they voted either for or against the acquisition of ABN AMRO—by a margin of over 90 per cent in favour. Noble Lords will no doubt recall that a competition was held for the ownership of ABN AMRO. Barclays failed, and perhaps now regards itself as truly fortunate. In putting the performance of banks into context, it is only fair to note that, on Friday evening, Barclays announced profits well above market expectations. It would be wrong to castigate all bankers.
	The value of assets, as I said earlier, is a matter for directors, who must know what the assets are worth. Valuation is not a precise exercise, as we discussed very recently in the context of the Banking Bill, but there is no excuse for failing to address valuation. When it comes to providing insurance, we will form our own views on valuation; that is, we will take a bank's data and form our own views on how much of the risk we will take.
	My noble friend's penultimate observation was on the danger that these policies will encourage people to be even slower in making payments. We will structure them so that we take what insurers refer to as the tail risk. The first or primary risk will rest with the banks, which will also take a proportion of the tail risk. They will continue to have an equity interest in ensuring that the existence of the insurance does not in itself lead to any moral turpitude.

Lord Lamont of Lerwick: My Lords, I thank the Minister for the Statement and I hope that it will remove some of the uncertainty that prevents banks lending to each other. I want to ask the Minister about the insurance scheme for bad past investments made by banks. On the radio the Chancellor said that the objection to the bad bank solution has been rightly rejected because it requires evaluation of these bad debts, which would take too long. Yet here we are with a solution that is going to take time and requires the valuation of those bad assets.
	Secondly, while the insurance scheme is a lot cheaper than the horrifying costs of the bad bank solution, it is not quite a non-cash item as the Minister suggested. The costs will build up over time and could be very significant. If the Minister cannot respond to my noble friend Lady Noakes about giving a cost now, will a cap and a cost be given at the point when the insurance scheme is put in place?
	Thirdly, how long might an insurance scheme last? I know that the "bad bank" solution has disadvantages, but one advantage would have been that it created certainty and got the assets off the balance sheet. The insurance scheme cannot last forever, so is it not the case that it has very considerable uncertainties attached and that, because we need full declaration and certainty, it may not do the trick?

Lord Myners: My Lords, the noble Lord, Lord Lamont, asks well informed questions. I did not hear the Chancellor of the Exchequer on the wireless, so I will not comment on what he said. The problem with the terminology "good bank, bad bank" is that it oversimplifies. The principal challenge in separating assets out into a new institution is that it would need separate funding, and there would need to be absolute agreement on the value of assets. If the Government paid too much for these assets it would be gifting value to the banks; if it paid too little, it would further diminish the capitalisation of the banks.
	The attraction of an insurance proposal, as opposed to the sale-and-purchase model of "good bank, bad bank" is that there is continued equity as far as the bank is concerned. To the extent that it does not need to call on the insurance and that the value of those assets improves, and they perform better than current expectation, it will continue to retain all the interest in those assets, less the premium it has paid for the insurance. I believe that I said clearly that the insurance was a non-cash item at first. It could be a cash item later, but might not be; that would depend on the efficacy of the insurance policy.
	I entirely agree with the noble Lord's best informed comment. The duration of the policy will be important, because we need a policy that will take financial markets through this economic downturn and beyond the next cycle, so we are probably talking about a policy duration of no fewer than five years and probably no longer than eight or nine years. In terms of the ultimate structure of the policy and the scale and value of assets covered, I imagine that matter will be disclosed publicly, not least by the banks, which will, in some cases, need shareholder approval to enter into the contracts. I commit that the Government will make available details of the broad nature, scale and coverage of those policies when they are entered into, should such policies be written.

The Lord Bishop of Chester: My Lords, may I return to the Royal Bank of Scotland? It may not be nationalised, but it is under national control if the Government own 70 per cent of the ordinary shares. Do the Government now guarantee the liabilities of that bank to the same extent as other government securities?

Lord Myners: My Lords, the Royal Bank of Scotland is not under national control. It is under the control of all its shareholders and its board of directors, and no discrimination or advantage accruing to depositors of the Royal Bank of Scotland is denied to depositors with other banks in terms of the Government standing behind those deposit liabilities.

Lord Cotter: My Lords, led by my noble friend Lord Newby, I want to carry on asking for clarification about the Royal Bank of Scotland. I am specifically concerned that, to quote the Statement,
	"we have agreed with them an extension of lending commitments to large companies".
	I am somewhat puzzled by that, because there is widely felt concern about small businesses and the Royal Bank of Scotland has particularly portrayed itself as their supporter. Can the Minister clarify exactly what is meant by,
	"an extension ... to large companies"?
	Is that at a cost to the small business sector?

Lord Myners: My Lords, in October the Royal Bank of Scotland, along with Lloyds TSB and HBOS, entered into commitments related to the availability and marketing of competitively priced credit to small businesses and private borrowers. That commitment remains in place, but this effectively extends it to include large companies. I believe that although there is considerable concern about the availability of credit to smaller companies, the initiatives announced at the time of the pre-Budget review, which my noble friend the Secretary of State for Business, Enterprise and Regulatory Reform expanded upon, have considerably eased the anxiety among smaller companies about the availability of credit.
	As I said to the noble Baroness, Lady Noakes, there is concern about larger companies as well. That is why the Royal Bank of Scotland willingly volunteered this extension in our discussions on Sunday. I repeat my earlier comment: over the weekend a number of banks expressed a step change in their confidence toward the availability of credit and profitable lending opportunities, as a result of the steps that have been taken, here and globally.

Lord St John of Fawsley: My Lords, in asking this question I must first declare a marginal interest. Is the Minister aware that I invested my modest savings in the national Bank of Ireland? There was then a series of takeovers, and I ended up with the Royal Bank of Scotland, which I had no desire to have any connection with whatsoever. In desperation, I then left the Royal Bank of Scotland and went to Coutts, which I thought was a safe haven. The next minute, I found that Coutts was taken over by the National Westminster which, after a short time, was taken over by the Royal Bank of Scotland, so I was back where I started.
	The gravamen of my question is: what will happen to those banks which, like Coutts, have hitherto had a proud record of independence? They have also had the great privilege of not only my membership but that of Her Majesty, whose interest is probably marginally larger than mine. What will happen now that Coutts bank is a wholly owned subsidiary of the Royal Bank of Scotland? What will the Minister do to safeguard the interests of the innocent who put their trust in financiers?

Lord Myners: My Lords, I was a director of Coutts bank. I am not sure whether many of my noble friends on these Benches were directors there, but it shows what an open party Labour is when casting its net into the areas from which it captures its supporters. Coutts is one of a number of subsidiary banks of the Royal Bank of Scotland, Ulster Bank in Ireland being another, for example. I can reassure the noble Lord that Coutts is, in my experience, a fine bank to bank with. It enjoys the same protections that apply to any other bank in the United Kingdom. Regardless of whether it is a subsidiary of Royal Bank of Scotland, it has a good board of directors—chaired by a Member of this House—and has, I believed, always exhibited cautious and conservative lending policies. No doubt that was one of the things that attracted the noble Lord, Lord St John of Fawsley, to it.

Lord St John of Fawsley: My Lords, I am obliged to the noble Lord. I shall sleep better tonight.

Lord Blackwell: My Lords, in assessing whether these measures are now adequate to the task, do the Government have a target for the level of credit they believe is necessary to support the economy in the next year to replace the previous aspiration of banks continuing to lend at 2007 levels? It is clear from the Statement that bank credit is contracting in the economy, both because, as the Minister said, foreign banks have disappeared from the economy and because UK banks are having to de-gear their balance sheets for both capital and liquidity reasons. Some of that decrease in lending may simply reflect the fall in the value of previously overvalued assets but we are all concerned about whether there is enough credit in the economy to support the genuine needs of business. As we look at these various packets of £50 million, £100 million, £200 million and add them up, is there behind that a government view of what level of credit they are trying to achieve to support the economy and whether these measures will achieve that?

Lord Myners: My Lords, we have given serious consideration to the quantum of support being provided through the asset purchase scheme, the asset protection scheme, the discount window and the support to securitize assets based on the Crosby model as extended and refined. We believe it will make a significant contribution. I wish I could give the noble Lord, Lord Blackwell, a more precise answer but there are a number of variables. Just as my doctor keeps telling me that there are two types of cholesterol—one of which it is all right to have and another which is not—there are two types of users of credit. There are many users of credit, for instance, in the world of hedge funds and speculation where, quite frankly, a de-leveraging of that kind of credit does no economic damage; it is the credit availability to the real economy that matters. We also need to take into consideration the global factors and the extent to which the process of banks retreating into their home markets continues to be a significant factor. The extent of credit that would need to be supported by government programmes is, to some extent, a response to certain factors that we have to take into account. We believe that a serious, comprehensive, integrated proposal is right to support the British economy in this global challenge and to make credit available to hard working British families and to British business.

Israel and Palestine: Gaza
	 — 
	Statement

Lord Malloch-Brown: My Lords, with permission, I shall repeat a Statement on Gaza made by my right honourable friend the Foreign Secretary.
	"With your permission, Mr Speaker, I would like to make a further Statement to the House on Gaza.
	From the outset of the conflict, the UK has called and worked for an immediate ceasefire. I know from questions last week that the whole House will have felt enormous relief when on Saturday night Israel halted its military operations in Gaza, and on Sunday when Hamas stopped its rockets. Our relief at the ceasefire is matched by our distress that it has taken so long to be achieved. The respite has come too late for too many.
	A ceasefire, as Security Council Resolution 1860 made clear, was always going to be the essential first step. We urge Israel to complete the withdrawal of its troops from Gaza with all due speed. Hamas must put a definitive end to rocket fire at Israel. That is why the Prime Minister travelled to Sharm el-Sheikh and Israel yesterday to join other world leaders in starting to embed that ceasefire and ensure it becomes the durable and fully respected ceasefire that we—and the Security Council—have called for.
	In the 22 days of the Israeli offensive over 1,200 have died and we are yet to know the full extent of the destruction. But horrific accounts and images already fill our news bulletins and we can be sure that life for Gazans, already grim, has become desperate. Systems for power, sewerage and food distribution are broken or under acute strain.
	Meanwhile, rockets have reached further than ever from Gaza into Israel. Israel has lost nine soldiers.
	The Gaza crisis has reverberated around the world. There have been large demonstrations in the Middle East but also in the West. The conflict has also been used to whip up hatred, including in this country, and I am sure the whole House will want to send a very clear and cross-party message that we all denounce the anti-Semitic attacks that have taken place and vow to work for their elimination.
	We are faced with two immediate challenges: stopping the flow of arms and starting the flow of aid into Gaza. In respect of trafficking in arms, as the Prime Minister announced yesterday, we are ready to play our part. The immediate security responsibility lies with Egypt but the origin of these arms stretches way beyond the Egypt-Gaza border. This is where international help aimed at interdiction, using intelligence and a range of military assets, is important.
	But it is not just arms that are smuggled. The closure of the crossings has also created a thriving illegal trade in necessities, which has filled Hamas's coffers without providing Gazans with the basics they require. Hand in hand with closing of illegal traffic must go a vast increase in legal traffic. The immediate priority is to meet the desperate humanitarian needs. That means not simply food and medicine but, for example, sanitation equipment. Then there are all the supplies which are required to repair Gaza's ruined infrastructure and return power and water. The Government have pledged a further £20 million on top of the £6.8 million we pledged earlier in the conflict. British charities have raised millions more.
	The Prime Minister made clear in Egypt and in Israel that reopening the crossings will be vital. The 2005 movement and access agreement between Israel and the Palestinian Authority should provide the framework. We are ready to help, including by reinstating and, if necessary, extending the EU Border Assistance Mission at the Rafah crossing.
	Smuggling and the crossings will be at the heart of the discussions this Wednesday evening when all 27 EU Foreign Ministers meet with Foreign Minister Livni, and on Sunday evening when we meet our Palestinian, Egyptian, Jordanian and Turkish counterparts.
	However, the critical actors in securing progress, never mind peace, are the Palestinians themselves. Full humanitarian reconstruction will be impossible unless accompanied by political reconstruction. Unity in Palestinian politics is vital to so many things: to rebuilding Gaza, to holding elections, to delivering peace. It is for President Abbas to lead this process. The Arab League and Egyptian commitments of November last year point the way forward.
	At a time of enormous loss for Palestinians, one thing should not be forgotten: Palestinians on the West Bank did not respond to Hamas's call for a third intifada. In fact, the Government of Prime Minister Fayyad in the West Bank showed clearly in their management—political, economic, security—that, given half a chance, the Palestinian Government can be hugely effective and provide a real partner for peace.
	At the UN and last week in this House, I said the Gaza crisis was a symptom of political failure. To avoid its repetition we need a political process. The Arab League showed in its letter to President-elect Obama in December that it was serious about its ground-breaking offer of peace embodied in the Arab Peace Initiative: the creation of a Palestinian state in return for Arab normalisation of relations with Israel—a genuine 23- state solution.
	The challenge is to ensure that this Gaza crisis does not simply provide another grim milestone in an endless conflict. As we help Gazans rebuild their lives, we must find a way to ensure that this is the last time they will have to do so. That means showing serious progress towards a Palestinian state alongside improved Israeli security. It means a peace process where closed door negotiations are buttressed by Israel and the Arab world taking steps to support rather than undermine the peace process.
	But anyone who doubts that peace in the Middle East requires the full, intense engagement of the international community only needs to look at the streets of Gaza today. International engagement that is full and intense includes the immediate engagement of the new American president and Administration. President-elect Obama and his Secretary of State designate, Hillary Clinton, have made clear that they understand the urgency and are committed to act. It will certainly be the first topic when I speak to the new Secretary of State this week.
	Palestinians and Israelis will be asking themselves whether they are fated to permanent conflict. I know that I will have the support of the whole House in doing everything possible to avert this future".
	My Lords, that concludes the Statement.

Lord Astor of Hever: I thank the Minister for repeating the Statement made by the Foreign Secretary in the other place. We welcome the ceasefire announced by the Israeli Government on Saturday, and the reciprocal ceasefire announced by Hamas. We also welcome reports of the continued gradual withdrawal of the Israeli defence forces.
	We all want to see the Middle East as the top priority for the incoming United States president and Administration. In the mean time, it is vital that we do what we can to help bolster what, at the moment, is a fragile ceasefire. Clearly, this must involve mechanisms to prevent weapons-smuggling into Gaza. Will the Minister be more specific about how weapons-smuggling through tunnels will be prevented? As part of the ceasefire arrangements, the Prime Minister has apparently offered Royal Navy support. The nature of this support is unclear. Will the Minister be more specific about this? What impact will it have on the many competing priorities of the Royal Navy, which now has so few frigates and destroyers? The Falklands guard ship has just been taken away to east Africa, so there is only one frigate covering west Africa, the West Indies and the Falklands. How can a single ship shuttle between these places and have any effect? Much as the Royal Navy would like to take on this commitment, it is hard to see how the Prime Minister is in a position to offer it, certainly for any length of time.
	Will the Minister also confirm that the Prime Minister has offered to help remove unexploded bombs in Gaza? Is the Minister satisfied that we have sufficient service personnel to do this, in addition to what they are doing in Afghanistan and Iraq, and their enduring commitments in this country? I declare an interest as honorary colonel of the Royal Engineer Territorial Army Bomb Disposal Regiment.
	It is vital that we help to ensure that there is a quick and effective aid supply to the people of Gaza. The Statement rightly points out that life for Gazans, already grim, has become desperate. We welcome the announcement that Britain will make available an additional £20 million in humanitarian aid. What steps will be taken to ensure that the severe constraints on the ability of humanitarian workers and supplies to reach the population are quickly addressed? In particular, what technical assistance will be needed to restore the basic infrastructure and prevent the spread of disease?
	Given the obvious need to open the crossings if aid and assistance is to enter Gaza on the scale needed, have the Israeli Government indicated when the crossings will be opened? Did the meeting at Sharm el-Sheikh agree a timetable for the opening of the crossings? Who will monitor the crossings? What role will the Palestinian Authority play, and what will happen to the Hamas representatives who are there on the ground? Are there any plans for a broader international monitoring mission?
	Finally, we on these Benches support the Statement's clear message denouncing the anti-Semitic attacks that have taken place in this country. We will do all we can to work for their elimination.

Lord Wallace of Saltaire: We welcome this Statement, but it is not enough. We welcome the ceasefire, but it is not enough. This conflict has been about not just rockets fired from Gaza but future relations between Israel and the Palestinians, and whether they are to be based on repeated assertions of military superiority, or on a return to negotiations and the achievement of a negotiated settlement.
	The Statement's aim of,
	"a durable and fully respected ceasefire"
	is far too limited. We have to get back to a much more active peace process that addresses not just Gaza, but the future of the whole of historic Palestine, or historic Israel, and which involves all interested parties, inside and outside the region, and therefore has to find some way of bringing in Hamas.
	Will the Minister comment on the quotation in Haaretztoday from King Abdullah of Saudi Arabia, saying that the Arab peace proposals would not necessarily be on the table for ever? Does he feel that this reflects the degree of urgency we face in saving some sort of wider peace negotiation?
	For Israel, this has been a tactical victory and a strategic defeat. We all recognise that Israel has lost the sympathy of public opinion across much of the western world, and has further undermined its claim to moral authority. I spent some time last week talking to a number of Israelis about what their preferred end game was for the Gaza conflict, and was frustrated to discover that nobody could tell me what the Israeli strategy was. Mr Netanyahu said that the aim had to be to destroy Hamas. However, if one does destroy Hamas, who runs Gaza? Does the Minister know how we can reconstitute Gaza without the engagement of the political wing of Hamas?
	Some Israelis would prefer to bring in Fatah again, under the approval of Israel—disastrous for the future reputation of Fatah on the West Bank, and of Hamas, it seems to me. Others in Israel say, "Gaza should be nothing to do with us in future. Open the Rafah crossing and push Gaza onto Egypt". The Mubarak regime is clear that that would threaten to destroy the Egyptian regime, with potentially disastrous results for Israel. Others accept that perhaps no one would end up running Gaza, and out of the chaos, an even more radical terrorist wing would emerge.
	We on these Benches find the approach of Her Majesty's Government deeply frustrating. They have been too close to the Bush Administration in their dying days, and too biased towards Israel after its disproportionate and self-defeating use of force. Having watched our Prime Minister at his press conference in Israel—an image that undoubtedly has gone to Al-Jazeera and the whole of the Arab world—one worries about the hatred issue. There is, as the noble Lord, Lord Astor, said, real concern about encouraging anti-Semitism in this country. However, encouraging hatred of the West across the Arab world must be deeply against Britain's long-term interests, and we have to be concerned about that, as well.
	Will the Minister tell us about the Sharm el-Sheikh summit? Under whose auspices was it held? What was the framework? Was it an EU summit or was it an ad hoc collection of heads of Government? Did it have any relationship with the quartet, or is the quartet no longer viable?
	On the policy of excluding Hamas and talking only to Fatah, one of my Israeli interlocutors told me that, in effect, Israel is already talking to Hamas through the Egyptians. There is a great deal of hypocrisy about how we keep Hamas out of the loop.
	The Statement refers to "unity in Palestinian politics". However, we and others have been promoting disunity in Palestinian politics ever since the 2006 election and the Israeli imprisonment of a number of elected Hamas MPs. The Statement talks about the,
	"creation of a Palestinian state".
	"A Palestinian state"? We need the Palestinian state foreseen in the road map, within secure boundaries, which I suspect have to be close to the 1967 boundaries.
	It is the same situation with talk about stopping the flow of arms to one side. Those of us who remember the Bosnian conflict recall that an arms embargo disadvantaged one side in a deep and bitter conflict. If we talk about the flow of arms, we must talk about the flow of British components to Israeli arms manufacturers.
	When the Statement talks about opening the crossings, will the Minister reassure me that it means opening all the crossings and not just the Rafah crossing? It talks about the contribution that we and others will make to rebuilding Gaza again. Who else will be asked to pay? Will the Israeli Government, as well as Arab Governments, be asked this time to contribute to the rebuilding of Gaza, which must be part of rebuilding a viable economy in the Palestinian land, one of the necessary bases for the negotiated settlement for which we all desperately wish but from which we are now further than we were three weeks ago?

Lord Malloch-Brown: My Lords, both the noble Lords, Lord Astor of Hever and Lord Wallace, have essentially said, "So far so good in terms of the ceasefire, but we need to go a lot further to build an enduring peace". We on these Benches agree completely with that view—this is a start, but no more than that. We must move quickly to bolster what is obviously a fragile ceasefire.
	I shall take the points in order. The issue of the tunnels and the boats is a critical early step to get right because it is a confidence-building step for at least one side. I do not pretend that we yet have all the answers. Egypt has always maintained that as the sovereign power at one end of the tunnels it should be responsible for security in that regard and has never expressed much enthusiasm for an international force in that function. With regard to the boats—there is a big debate about how many of the arms come in by land and how many come in by sea—that is an area where the international community can make more of a contribution, hence the Prime Minister's offer. It is certainly his expectation that it would not just be the UK but that a group of countries would provide boats if that were useful. Again, though, a whole series of questions need to be thought through about the right of interdiction at sea, the legal basis on which the boats would be operating, and many other issues. These are spontaneous initial responses to the situation and offers made in great seriousness to try to move this thing forward, but an effective regime of controlling arms smuggling, either underground or by sea, must be urgently developed. We will play whatever useful role we can in that, within the limitations of our military and naval capacities, as was pointed to by the noble Lord, Lord Astor.
	Both speakers said that we cannot stop there. Equally important in this first phase is ensuring that the crossings are opened. Here there may well ultimately be a role for an international monitoring force, under either the UN or some other international flag—there is some experience of that already. It must involve all crossings in order to ensure that adequate humanitarian access is achieved and that the economy of Gaza can be restarted. The level of destruction, as we have started to see today in the footage from journalists who have been able to regain access to Gaza, is truly horrendous and goes well beyond easily moved supplies such as food, medicines and water to fundamental infrastructure materials, a large volume of which needs to be brought in over a considerable period of time.
	The noble Lord, Lord Wallace, expressed concern that the Arab peace initiative will not be there for ever. It seems like a long time ago, but before this dreadful conflict in Gaza started the Foreign Secretary toured the region, trying to build support for the Arab peace initiative. That was the main thrust of David Miliband's Middle East visit, now six or seven weeks ago. He and the Government believe that it remains as important now as then, but it is right to say that it will not remain on the table for ever. A cost of this conflict is a polarisation and radicalisation of opinion in the Arab world as well as other places, which means that moderates have difficulty in holding on to their ground. If we are to move forward with the initiative, we must do so quickly.
	That takes us to the question of who runs Gaza and the role of Hamas in the political process. It is primarily, as the Statement said, for Palestinians to determine who runs Gaza; there must be a political process that will resolve the differences between the two Palestinian groups, Fatah and Hamas. There remain several ways that the Palestinians could choose to move that forward. One is to reunite again under the banner of the Palestinian Authority, which recognises the state of Israel and has sought a peaceful means to resolve these conflicts. If the authority became a unifying Government for the two halves of the Palestinian community, that would be a way forward. There is speculation among Palestinians that it may be easier to move to elections and elect fresh leadership. Ultimately, though, the Palestinians must resolve how to come together in a united way and negotiate not just with Israel but with the international community as well.
	If I may, I shall defend the Government and our Prime Minister and Foreign Secretary. Perhaps I am looking at this from the other end of the measuring stick, in a sense, but it seems that the Government have tried to show even-handedness in this conflict and we have not fallen into the trap of blind support for one side. The negotiation of the UN Security Council resolution, in which we played such a leading role, reflects that, and Israel's anger at that resolution demonstrates that if offending both sides is the measure of neutrality—or if not neutrality, at least some balance—then it was a much better performance than that of several years ago, when the charge that there was not balance quickly enough in British policy in 2006 perhaps had more truth to it.
	On the arms issue, we want to stop a conflict that began because the Israelis were reacting to rocket attacks on their cities. We therefore want to prevent a revival of those rocket attacks, so preventing the resupply of those rockets is vital to building peace. There is inequality in arms supply; there is no way around it. Israel has a large domestic arms industry of its own. As I have assured the House before, we have sought, in the limited arms exports that we allow to Israel, not to export material that we think can be used to kill civilians or indeed can be used for repressive means. We will continue to review that policy, which has subsequently been reviewed in a judicial process that confirmed that it was living within the objectives set for it. However, I do not mean to detract from the argument that these issues of military supply and balance are key.
	I turn to the final point that was raised, the reconstruction and who will pay for it. I was pleased to hear today that the Saudi Government are contributing $1 billion to reconstruction, and I hope the Gulf countries will play a leading role in that. However, as I have said before in this House, and I think this is a widely shared sentiment, how many more times do we have to rebuild Gaza? There is an obligation on the parties to this conflict to bring this to an end and stop the shameless cycle of reconstruction and destruction.

Lord Hylton: My Lords, I am sure that we are all grateful for much of what was said in the Statement and for some of the Minister's replies to questions. I have three brief points. First, will the Government make it clear that the taxpayers of the world cannot be expected to repair and replace the wanton damage caused by Israel to civilian and United Nations premises? Israel, surely, should initiate a worldwide Marshall plan for both Gaza and the West Bank. Secondly, given that the present ceasefire is not necessarily permanent, and that there is still no agreement about crossing points, will the Government insist on access by sea to Gaza for relief and emergency supplies? Ships carrying such supplies should, if necessary, be escorted by NATO and other allied navies. Finally, will the Government ensure that tankers carrying pure drinking water by sea to Gaza, to prevent widespread kidney disease and other diseases caused by polluted supplies, can get there?

Lord Malloch-Brown: My Lords, I sympathise deeply with the observation of the noble Lord, Lord Hylton, that it is not fair to turn to the international community time after time for this kind of reconstruction. Israel, too, has a responsibility in this. That is absolutely correct. However, equally, we cannot make the reconstruction a political football when people are in need and their lives are at risk today. We have to start this and, once more, it will be those with a reputation for generosity in such humanitarian activities who, I fear, will get a large portion of the bill. It is worth it; lives that have been so deeply jeopardised by recent events will be saved.
	As to access from the sea for humanitarian supplies, the UN Secretary-General has sent a humanitarian assessment mission to the region and a DfID Minister, Mike Foster, is also there looking at the humanitarian issues. We will need to wait and see what is the best way to achieve the supply that we all want to see on an urgent basis.

Lord Judd: My Lords, I welcome the ceasefire with no reservations whatever. Many of us want to put on record our appreciation of the very constructive part played by the Secretary of State and indeed by the Minister of State himself and other members of our Government. Does my noble friend accept that this is only a very fragile ceasefire? As the noble Lord, Lord Wallace of Saltaire, has said so well, getting on with the job of renewing the peace process is urgent. If that peace process is to be meaningful and to have any chance of fulfilment, is it not essential from the outset that those involved are drawn from as wide a spectrum as possible, and that we avoid the mistake—repeatedly made in the past—of limiting negotiations to those with whom it is convenient to negotiate? Is it not essential to be prepared to talk to those with whom it may be very difficult to talk? Meanwhile, does my noble friend agree that there is very little that is more urgent in humanitarian terms than to lift the siege of the Gaza economy?

Lord Malloch-Brown: My Lords, I think the answer to my noble friend's questions is "yes". The peace process does need to be expanded. In the Statement the Foreign Secretary used the phrase "23-state solution". That reflects the idea that we need to get the whole Arab world—friends and not such friends alike—involved if we are to get a durable peace that will hold for all. Equally, I confirm my noble friend's second point about the urgency of access.

Lord Cope of Berkeley: My Lords, we are all grateful for the Statement and, of course, for the ceasefire itself. Clearly, immediate humanitarian aid should have priority. Does the Minister agree that rebuilding the economy of Gaza is vital and urgent? I do not only mean rebuilding it to its position before the bombardment, when around 50 per cent or more of Gazans were unemployed, but rebuilding it to a much more normal position. The Statement seemed to say that we will work for full political agreement before trying to rebuild the economy. That is almost the wrong way around. We need a Marshall plan of an enormous kind for the economy of Gaza. As the Minister said, Saudi Arabia is promising $1 billion and is hoping to raise another $1 billion from the other Arab states quite shortly. We should back them up to get the economy moving, almost regardless of politics. That means opening the crossings—particularly into Egypt—and sea wharves in full for trade, and, as soon as it can be arranged, the airport, to which the Minister referred the other day. Freeing the economy and allowing the people to work and earn will make the politics much easier. The effect of Israeli actions in beggaring its neighbour has made the situation infinitely more difficult.

Lord Malloch-Brown: My Lords, like the noble Lord, I have always been attracted to the idea of a Marshall plan for Gaza and the West Bank. He and I are not alone; our own Prime Minister proposed such an idea when he was Chancellor of the Exchequer. Shimon Peres, that grand elder statesman of Israel, has frequently proposed a Marshall plan. I must say that I have come to the reluctant conclusion not that the politics has to follow the economics, but that—at the very minimum—both have to go together. The prospect of reconstruction without moving forward on this political agenda, demonstrating to potential donors and investors that this time peace is for real, tests faith to the limit. You cannot raise the resources without demonstrating a real political will for peace as well.

Baroness Northover: My Lords, the Minister spoke of the radicalising effect of this conflict and we have seen the emphasis that has been placed, certainly in the United Kingdom, on this conflict. How does the Minister think that we can continue to keep the international spotlight on this? Does he not see this as a very dangerous moment? Is this not a much more dangerous conflict even than previous ones? If we do not keep that international spotlight on the Middle East, we will be in a very serious situation. Following what was said earlier, how do we ensure that the Gazans are not simply imprisoned again, that a port and an airport are open and that the Gazans are able to trade freely? On accountability, although it may seem politically difficult, will the investigation of war crimes be pursued?

Lord Malloch-Brown: My Lords, on the first point, urgency is everything. At the end of the Lebanon conflict in 2006 a Security Council resolution was adopted with a much fuller set of stages for building the peace than Resolution 1860. It laid out a whole series of territorial and disarmament objectives, which were meant to be reached in sequence. Most of that sequence has been honoured in the breach rather than the achievement because once a kind of peace settled back down, monitored by UN peacekeepers, the pressure on the two sides to resolve these difficult issues dissipated and fell away. We must make sure that the same does not happen to Gaza. The noble Baroness, Lady Northover, is absolutely correct. We have to ensure that we push through and get these political arrangements locked in and agreed to as quickly as possible. I hope that a new American Administration will become part of dealing with that.
	On war crimes, the UN has now seen this tragic attack on an UNRWA school, following the attack on the main UNRWA compound. It is in a good place, through its own processes, to make that case to the right international authorities if it believes that the evidence is there.

Lord Lea of Crondall: My Lords, on the relationship between—

Lord Steinberg: My Lords—

Lord Elystan-Morgan: My Lords—

Lord Davies of Oldham: My Lords, I think it is the turn of the Cross Benches.

Lord Elystan-Morgan: My Lords, I am grateful. May I join all noble Lords who have so sincerely tendered their congratulations to the Government and to the Minister on the honourable and effective part played in the achievement of the albeit fragile peace described by the noble Lord, Lord Judd? Does the Minister accept that the fragility of that peace is bound to be very greatly affected by the success or otherwise of interdicting the resupply of rockets to Hamas? I appreciate that that is not the only factor but it is a crucial one. Does he accept that interdiction on the high seas would be entirely consistent with the most classical principles of international law? Has any hint been given of support for Britain—this is not a matter for which we can be responsible alone—from the United States, the European Union and particularly, if that were humanly possible, from any of the Arab League states?

Lord Malloch-Brown: My Lords, I reconfirm that while the noble Lord is right to say that it is only one element, the interdiction as regards the resupply of these rockets is a key part in building the confidence between the two sides which will allow for a long-term peace. The offer as regards interdiction at sea did not come out of the blue but emerged from discussions with a number of parties, including the Israelis, the Americans and others. I think that it will enjoy widespread support. I hope that it will happen under an international flag and that a number of us will combine to make it effective.

Lord Lea of Crondall: My Lords, as regards the relationship between Hamas and Fatah and talking to the "Palestinians", can my noble friend enlarge a little further on his reply to my noble friend Lord Judd? If we talk to only one of these two parties, it begs the question whether they are both more or less representative in the West Bank and Gaza respectively. In so far as I understand where the Government are going, they both ought to be at any round table meeting and we cannot require prior agreement between them. Can he explore further with European Union colleagues how that could be arranged, and then discuss it with President Obama?

Lord Malloch-Brown: My Lords, my noble friend knows that he is stepping on a very sensitive issue, but one that I think all of us in this House agree needs to be advanced and progressed. We have to find a way for the Palestinians to come together in a way that allows them to engage with the international community as well as to negotiate with Israel. I laid out two possibilities for that: to reunite under the flag of the Palestinian Authority and President Abbas in a way that created a united Government to whom the international community could talk and who met broadly the conditions of the quartet principles; or, as an alternative way of arriving at this point, to offer the potential prospect of elections. Both options are being discussed among the Palestinians. However, I cannot assure the House that it is as straightforward as my noble friend has suggested and that we shall instantly be able to sit down around a seminar table with the two Palestinian leaderships equally represented. That kind of statement would be highly inflammatory in this context. We have to understand that we need to work to arrive at a point where we can deal with the whole Palestinian community, but we cannot cut corners in a way which undermines these first limited political steps before the baby can walk, if you like.

Lord Steinberg: My Lords, I wish to ask a few questions which I hope may help to resolve our thinking on the way forward. First, I agree very much with my noble friend Lord Cope that the economic aspect must come first, even before the political one, although I understand that the political discussions are ongoing. Secondly, does the Minister agree that if Hamas could be persuaded to drop from its charter the desire to destroy Israel completely, that would very much help the thinking of the Israeli public and Government? If and when the border crossings are opened, I should be very much in favour—I hope that the Minister agrees with me—of them being policed by a joint force to ensure that Israel acts properly and that the people coming out of Gaza, and goods going into Gaza, are properly handled.
	My final point is slightly off the wall. We have been talking a lot about the tunnels and the arms smuggling. Is it not a worthwhile idea to sink a deep trench along the "Philadelphia corridor", with the permission of Egypt, and flood all the tunnels from the Mediterranean Sea?

Lord Malloch-Brown: My Lords, while I consider the answer to the noble Lord's final point, I shall reply to the first two. I have already said that the economic and political aspects need to proceed in parallel, but we certainly need to accord enormous importance to the economic aspects. As regards Hamas dropping the destruction of Israel from its charter, the quartet principles, which also call for the renunciation of violence, are the principles we have always required of Hamas before it participates in negotiations, or we participate in negotiations with it. As has been discussed, we need to find a way to move forward and not fall back into the previous arid stand-off. We must find a way of bringing Hamas forward, ultimately as part of a united Palestinian delegation, into negotiations on a final peace.
	On the border crossings, it is clear that two issues require to be addressed. The first is the need for some kind of international presence to ensure access. There is also the issue of how the Palestinians manage their side of these border accesses.
	On the noble Lord's final point, we may need a new Ferdinand de Lesseps to come back and do a few of his magnificent tricks digging big drains in the region. However, I shall certainly pass the point on to those more qualified to deal with it than myself.

Lord Dykes: My Lords, while accepting that the Minister has to be—and, indeed, is—even-handed between the combatants in this matter, does he not accept the reality that Israel is the established state?. The Palestinians are still seeking their independence and their state, which President Bush originally promised in 2005. Does the Minister therefore agree that the British Government have a duty to warn Israel about the stage it has reached with this monumental mistake of the invasion in Gaza? This is the equivalent of Israel's Sharpeville. Gaza will now be remembered throughout Arabia as Israel's Sharpeville. The whole tone has now changed towards Israel in that whole area. This is tragic as it is unfair on the millions of moderate, decent Israelis who want a settlement and a two-state solution. Will the British Government remind the Israeli Ministers—some of them inept and incompetent to a degree which understandably caused the fury and rage of Gerald Kaufman in another place in Thursday's debate, despite the histrionic language—that they have a solemn duty to resume these negotiations with the Palestinians as quickly as possible, whatever the structure may be, to ensure that Hamas is included? It is absurd, is it not, to exclude Hamas from these processes to create that state as quickly as possible?
	The negotiations with President Abbas were going on far too long with no results at all, and no one lifted a finger in the EU part of the quartet or in Britain to protest to the Israeli Government about the lack of response on their part. Does the Minister agree that this must now surely be done as quickly as possible? That means accepting the suggestion made by the noble Lord, Lord Steinberg—we are both friends of Israel, but we have somewhat different views on the way to achieve outcomes—insisting that Israel immediately opens all the crossings on the Israeli side into Gaza.

Lord Malloch-Brown: My Lords, I absolutely share the noble Lord's impatience. The process had taken much too long, it was much too dilatory, and it was not getting anywhere. There could be no better lesson to all of us—Israelis, Palestinians and all of us in the international community—that this neglect of international negotiations does not lead to a static situation; it leads to one of potentially enormous, overwhelming tragedy and violence. That is what has happened.
	As I said to the noble Baroness, Lady Northover, in a previous reply, there absolutely must be the will and urgency now for a solution now, before somehow the sense of concern dissolves and it is back to business as usual. We must find a solution. Israel carries very special responsibility to find a solution after the events of recent weeks; but so does the Palestinian leadership. It is time now to build the peace that has eluded us for so long.

Arrangement of Business
	 — 
	Announcement

Lord Brett: My Lords, I understand that the noble Earl, Lord Attlee, no longer intends to speak in the next debate.

Economy: Automotive Industry
	 — 
	Question for Short Debate

Tabled By Lord Harrison
	To ask Her Majesty's Government what steps they are taking to help the automotive industry.

Lord Harrison: My Lords, the automotive industry is suffering acutely from the global downturn. Its precipitous decline in the past six months is charted in an excellent Commons research paper that was published at the end of last week. But bad news comes not as single spies but in battalions: Honda has just announced that it is standing down workers until the summer, illustrating the quickening pace of the decline. So tonight it is right that we debate why and how the Government might help this key industry. I start by asking my noble friend what today's timely announcement on banking means for the car industry, especially the £50 billion set aside for businesses?
	Let us remind ourselves that this is an inherently successful industry on whose coat tails other suppliers, dealers, R&D professionals and entrepreneurs thrive. It is an industry that is totemic of the best of British manufacturing. Those gainsayers who characterise the modern British automotive industry as unreformed as the lumbering American car industry, or as a head case left over from the 1970s, are simply wrong. Some 73 per cent of cars and vehicles made in Britain are sold abroad as exports, principally into Europe. They are so sold because they are first-rate products, competitively priced and supplying a real market, either as volume producers—where Nissan in Sunderland has been Europe's most productive plant—or as producers of executive or specialist vehicles. The recent history of Bentley at Crewe is one such unparalleled success. To fail to help an industry that is currently suffering a lack of customers, short on ready finance, would be to punish a reformed and thriving industry that is well placed to resume successful sales once the credit crunch is crushed.
	Professor Garel Rhys of the Cardiff Business School believes that the downturn will last until 2011. Does my noble friend accept this and agree that it would be madness to dissolve the industry's core of skills, knowledge and expertise, hobbling its resumption of successful sales when the downturn ends? Given that the market lacks customers, not products, does my noble friend agree that we need to stimulate the supply side rather than the demand side? Customers are there, but they lack access to reasonably-priced finance. In talking to the banks over the weekend, was the automotive industry specifically mentioned? What was decided about loan guarantee schemes and how they might be applied here? Given the banks' reluctance to lend, but their apparent readiness to lend 8 per cent disbursals outside the UK, have the Government considered guaranteeing banks making loans direct to plants themselves, or indeed should the Government make direct loans themselves to the plants? Will my noble friend confirm that there has been a genuine difference of opinion on this issue between BERR and the Treasury on how to help?
	I am not advocating throwing good money after bad, but this dynamic industry needs help during the temporary drought of customers. Interestingly, venture capitalist Jon Moulton also believes that financial aid may be the wisest course, recognising the cost and misery of abandoning broken communities at the heart of industrial Britain. Of course, the Government must adopt a case-by-case approach for assessing claims on the public purse. Those cash-rich companies, such as Tata on Merseyside and Honda in Swindon, should shoulder the burden of interim funding themselves, and do so for their own very good and sound commercial reasons. Does my noble friend agree?
	The Government have already been active in dealing with the downturn, but the temporary reduction in VAT to 15 per cent is perhaps of marginal worth in respect of the domestic car market. After all, 86 per cent of automobiles sold on the domestic market in Britain are imported, and the net saving of 2.13 per cent on VAT—not 2.5 per cent—is not a compelling incentive; indeed the fact that Citroėn dealers offer to pay the total VAT on sales to customers suggests just that. The VAT cut will, of course, help domestic sales of the 27 per cent of cars made here in the UK and, in turn, this will give some succour to hard-pressed car dealers.
	Europe is the principal market for Britain's automotive exports and imports. Can my noble friend report on the meeting in Brussels last Friday, which was convened by Commissioner Verheugen to co-ordinate a rational approach to shared problems? My noble friend Lord Mandelson has warned member states to avoid self-defeating protectionism. Nevertheless, France, Spain, Sweden and Germany have already devised national plans. Are HMG fully engaged in swapping innovative ideas with our partners? For instance, Germany's short-term Kurzarbeit initiative, where wages are being paid by the Government for up to 18 months to ensure that key workers remain in place ready for the upturn, is worthy of examination. Are we actively stealing such good ideas?
	Does the UK support the European Investment Bank's proposed £40 billion facility available to the automotive industry? As I understand it, member states are permitted to give help to their domestic plants to facilitate government guarantees to maintain their liquidity and investment. However, the Finance and Leasing Association believes that such finance is restricted only to promoting new energy-efficient schemes. What is the truth? Are we fully on board? The EIB also proposes supporting skills updating, R&D and so on. Are we sympathetic to those?
	In the longer-term, what is Her Majesty's Government's view of membership of the single currency? How much better off we would now be inside the single currency, rather than exposing ourselves to the violent swings in exchange rates that so impair rational business planning for the automotive industry. Nor can we remain deaf to the criticism of bosses of our Japanese-owned plants, who are frustrated that Britain's absence from the eurozone weakens their access to the single European market.
	Half the jobs in the automotive industry are found in components firms. They, too, need tailored help. Does my noble friend acknowledge that many of them are small firms lacking the in-house personnel to tap into the current raft of excellent government schemes aimed at honing core skills, encouraging R&D and promoting innovation, as well as repositioning the industry to face the challenges of producing low-carbon emission cars and the environmentally friendly vehicles of the future? Will my noble friend say how Government might improve knowledge and confidence for these smaller firms to take up these schemes? Selective assistance and finance for investment in England initiatives are complemented by many others, but do those firms for which those schemes are designed know of their existence? Can my noble friend report on the Automotive Innovation and Growth Team, the useful supply-chain group—will its life be extended?—and on the Foresight Vehicle group and the National Skills Academy for Manufacturing? These should be nurtured during the downturn.
	The influential SMMT called for government action, including special liquidity arrangements for manufacturers' finance companies to access money through banks, scrapping plans for increased vehicle excise duty and a new first-year rate, increased capital allowances for fleet buyers, and the temporary shelving of plans to reform business car capital allowances. Are HMG sympathetic?
	Finally, the FLA is a body representing motor, asset and consumer finance providers working through independent non-bank lenders and subsidiaries of manufacturing companies. Am I right in believing that these companies do not have access to the Government's finance schemes announced last October? Will HMG extend the eligibility criteria of the Bank of England's special liquidity scheme and the Debt Management Office's credit guarantee scheme to such lenders?
	In proposing this debate, I had hoped to touch on many important issues for the future, but tonight we must concentrate on the matters of the moment. We must address the problems and consequent opportunities of the moment; namely, the survival of a successful industry bringing pride and jobs to Britain. If we fail in our task, there will be no automotive industry to talk about, and we will all be the poorer.

Lord James of Blackheath: My Lords, I congratulate the noble Lord, Lord Harrison, on obtaining this discussion on this important subject. I should first declare my interest, having spent my main career years with the Ford Motor Company.
	According to the noble Lord, 86 per cent of all cars are foreign imports. I would not argue with that. On the day that I joined the Ford Motor Company, the figure was 2 per cent, and that was nearly made up of top-end Mercedes. What went wrong in July 1964? The first Harold Wilson Government went wrong. They came in and decided that they had to cure the economy of what they perceived as a credit crisis—we should all be so lucky today—by imposing stringent controls on the purchase of cars. There was a maximum of 18 months to pay, with a 50 per cent deposit, and no one could sell a car for two years. Worse still, at the end of that two years, when the controls were taken off, there was no back-stock of vehicles that were ready and waiting to be bought. The only cars available were those coming from Japanese and Korean manufacturers which flooded the market. The British motor industry never recovered and was ruined from that day on. We owe it something now at this exceptional time to try to put it right.
	What could we do? One thing would fulfil a lot of what the noble Lord, Lord Harrison, was talking about, but would not actually require the extent of government subsidy and support he asked for. We could perhaps relieve a little of the Government's burden by repealing the Consumer Credit Act 1974. If this were to be done, you would immediately open up the way again for the banking community to provide secured lending for motor cars, and that would effectively remove the need for much of the guarantees that the banks had received and give them an incentive to become more aggressive in lending for cars, as opposed to anything else in the community. It would provide the necessary financial fuel to kick-start the motor industry again. If it takes one or two years for the whole crisis to be resolved, such a measure would have a profound effect by the end of that period. We could probably tweak it a little bit with some additional government support. Firms such as Tata could go down the path of olden times, whereby they could provide their own forms of credit plans. That would give them another profit incentive. It would be a really big initiative that would cost us nothing and would have a huge effect.

The Earl of Mar and Kellie: My Lords, the United Kingdom's vehicle-building industry would like help from the United Kingdom Government, as do many other industries. That would cause already-constructed vehicles to be sold and credit to become available again to enable those sales to take place. Many people will have delayed purchasing during the commentator-enhanced start of the recession, and they will be anxious to require a replacement for their current vehicle, which they have held on to for rather longer than they had initially planned. Car manufacturers will need to slow down their rate of production—several have taken breaks in production—otherwise, there will be ever-increasing fields of unused cars, which it may be questionable to call new cars.
	So far, I suspect that the Minister will go along with me and give limited assistance. My preference would be for any government support to be prioritised on cleaner and smaller cars. To be really tough, we should only accept group A and group B engines that emit up to 120 grams per kilometre. We should refuse to allow car engines to exceed 2 litres in capacity. Moderation may allow for the inclusion of group C cars, which emit up to 150 grams, to obtain a good ratio of petrol engines to diesel engines and avoid overuse of either fuel, and to achieve a balance for the refineries.
	A crisis is a good time to change things—so says at least the crisis theory of social work, with which I lived for a long time. Britain and Germany should abandon their big-car, company-car culture. The Government can help by not assisting car builders that build larger cars. At the same time, work is required to improve batteries, to increase all-electric urban vehicles and hybrids, and to promote LPG vehicles, unless supplies of LPG and propane are being used up at an appropriate rate. The public can assist in this move to cleaner cars by being properly informed about the various rates of vehicle excise duty and, hence, fuel economy, all of which should be mandatorily and prominently advertised—not just for group A and group B vehicles with their zero and £35 vehicle excise duty rates. Ultimately, we must recognise that there are predictions that the internal combustion engine that we know and love may well go out of production by around 2036, although the fleet will of course be significant until about 2050.
	The Government should assist this industry, which is good in parts and exports well, but not help too much, in fairness to other industries.

Lord Rowe-Beddoe: My Lords, I join noble Lords in thanking the noble Lord, Lord Harrison, for bringing this important subject to our attention. I declare an interest as a former chairman of the Welsh Development Agency, when it and I were greatly involved in the strengthening of the automotive industry within Wales in particular and the UK in general.
	At the outset, I remind your Lordships that the link between the UK automobile product and the UK consumer is relatively weak. As noble Lords have heard, 75 per cent of total UK production is exported, while 85 per cent of total automobile purchases are imported. Therefore, stimulation for the purchaser alone could well aid overseas-based companies more than those here.
	I suggest that a more effective way to address the severe cash-flow and inventory problems confronting our manufacturers would be to provide loan guarantees to the individual corporations, rather than to provide guarantees to the banks. This course of action could be criticised for putting the Government or their agencies into a position of choosing winners, but so be it. I should prefer that to having the banks at this stage determine to whom they loan.
	As we have heard, the motor industry in the UK is of significant importance to the economy. The Ford engine plants at Bridgend and Dagenham are recognised by their global management as exemplars of best practice, and they produce 25 per cent of Ford's worldwide engine requirement—a major export. However, as your Lordships have heard, Nissan and Toyota in the UK are consistently numbers one and two in the European productivity league, as measured in output per worker, and not far behind them on the pan-European scene is UK-based Honda. BMW Mini is outstanding, and in productivity terms the Ellesmere plant is one of General Motors' best performers, if not the best, in Europe. At the other end of the market, the ex-works value of the output of Bentley, Rolls-Royce and Aston Martin in 2007 was equivalent to some 250,000 Superminis. One can see here the impact of high value-added manufacturing.
	More than 50 per cent of manufacturing employment is in automotive components and systems, largely of course in SMEs, where greater job losses have already been recorded than in the main assemblers. As an example, Honda has announced a four-month shutdown at Swindon but continues to pay its employees basic rates. SMEs cannot afford such luxury and have to make redundancies, as they do not have that financial muscle.
	Some of your Lordships heard Mr Günter Verheugen talk about a pan-European solution. There should be such a solution, otherwise we will be in danger of attracting unfair competition in the industry. Above all, we have to retain our skills. We have heard of the Kurzarbeit in Germany. I hear that France is already talking of €1.5 billion of support and the Germans of €800 million. All these measures are designed to retain skills, and that is the most important thing that we can do in the next 18 months to two years. We must retain the skills of this significant industry so that we are ready for the recovery, when it comes.

Baroness Wall of New Barnet: My Lords, I, too, thank my noble friend Lord Harrison for presenting us with this timely and very important debate. I declare an interest in that I work with the Sector Skills Council, about which I shall speak.
	The automotive sector in the UK makes a significant contribution to the economy. With an annual turnover of around £50 billion, the sector directly employs 158,000 employees on around 3,300 sites and supports more than 700,000 jobs in the supply chain. Within that chain, 82 per cent of businesses employ fewer than 50 people. Annually, 1.7 million cars and commercial vehicles are built in the UK, together with more than 3 million engines. The biggest global players all have manufacturing sites in the UK. These companies—the top-tier automotive supply chain companies—along with the Society of Motor Manufacturers and Traders and the trade unions, have come together under the umbrella of the Semta automotive sector strategy group to champion the development of skills and business improvement across the sector.
	Government have already pledged, under the sector compact, £65 million of support for the companies within the Semta footprint in England. Forty-five automotive companies have already taken up this offer and the target of 200 companies is to be achieved in the first year. This funding is addressing the need for upskilling at levels 2 and 3 in particular, with first and second NVQs available, as well as leadership and management development, all-age apprenticeships and skills for life. The funding is clearly assisting companies to train and upskill in large numbers. For example, for Toyota, Honda and Jaguar/Land Rover, training in business improvement techniques is part of a drive to improve the bottom-line performance of those companies and, alongside that, to qualify their workforce. Furthermore, specific programmes are being developed by the National Skills Academy for Manufacturing so that the automotive sector can meet the current demand for the rapid deployment of world-class upskilling.
	However, during these difficult times, wider and deeper support is needed for the vehicle manufacturers and their supply chains. The number one assistance that the sector requires to save jobs is access to affordable business finance. This would greatly assist sales with more attractive loan rates for the consumer, the stocking of showrooms and, for the OEMs, more investment in new technologies and R&D.
	In terms of incentives and assistance for the sector to keep people employed during the downturn, employers would like to see an urgent extension of sector compact and Train to Gain support in the following ways: management and leadership grants widened to cover all sizes of companies; 100 per cent funding for level 3 qualifications for all occupations; a broad range of level 4 qualifications to be supported, including, for example, design engineering skills where there is a shortage; wage subsidies also to be available to large companies to save jobs; and an extension of the SME "bite-size chunks" offer to large companies.
	At my meeting last Friday with all the major motor manufacturers, it was clear that the focus that the Government have placed on the industry is much appreciated, but they are desperately anxious that this commitment is delivered "like tomorrow". Semta and the SMMT have joined voices to ensure that all automotive employers know about and can easily access available support. Their next joint meeting will be on 28 January and more than 150 employers will be in attendance. This would be a great opportunity for the Government and their agencies to respond to the needs of the industry.

Lord Bates: My Lords, I join in paying tribute to the noble Lord, Lord Harrison, for securing this timely debate. I identify very much with his tribute to the importance of this industry and its excellent record in manufacturing in this country. I declare my interest, as listed in the register, as a non-executive director of the Vardy Group of Companies, which includes motor retailing among its many activities.
	Coming from the north-east of England, the main focus of my interest is the wonderful Nissan company. It came to the north-east of England in 1984, courtesy of the efforts of my noble friend Lady Thatcher. It has had a tremendous impact upon the north-east of England. It is the largest car plant in the United Kingdom and the most efficient in Europe. Last year it exported 75 per cent of its output through the port of Tyne to 45 countries, and Russia is its largest market. Its emphasis on lean manufacturing and continuous improvement has improved the competitiveness of more than 300 suppliers in the region. It is estimated that 56 per cent of manufacturing jobs in the north-east region are linked directly or indirectly to Nissan. The current lead model, Qashqai, has been Nissan's most successful model ever.
	This is borne out by the outstanding leadership team at Nissan who have taken some very tough decisions over recent weeks in securing the long-term competitiveness of the plant. It behoves the Government and all policy-makers to see what they can do as well. The proposals I want to put forward are not aimed at bailing out a failing manufacturer—far from it. Nissan is an outstanding success story and is more than able to stand on its own two feet. My proposals are aimed, rather, at freeing up the market.
	Most vehicles are purchased from manufacturers by retailers using finance companies, such as Renault or Ford Finance, rather than banks. Trade finance from these sources, however, is drying up and desperately needs lubrication. I do not see that either the loan guarantee scheme announced last week, which is aimed at small business, or the special liquidity scheme announced today aimed at existing car loans will necessarily do this. In his Statement to the House on business support last week, the noble Lord, Lord Mandelson, noted that this,
	"is above all a credit crisis".
	He said that it was impacting companies whose,
	"business models are not flawed, but the credit crunch has drastically reduced the amount of capital available". [Official Report, 14/01/09; col. 1225.]
	I totally agree with that analysis. Why, therefore, are the Government persisting with the failed policy of the VAT reduction? The projected cost of the reduction was £12.5 billion over a 13-month period. If it was scrapped now, that could release £8 billion to go towards tackling the real problem of credit availability.
	Finally, the Government may care to consider the following idea. In Germany, Italy and Spain, scrapping incentives have been introduced for manufacturers. Under these schemes, high-polluting old cars qualify for a special grant of about €2,000 when they are traded in for new energy-efficient vehicles. That is good for the economy and good for the environment. Will the Government explore the feasibility of introducing such a scheme here?
	The message is that Nissan was and is a world-class car manufacturer and through carefully targeted stimulus packages we will ensure that it continues to be so.

Lord Jones: My Lords, my noble friend Lord Harrison, as a one-time Member of the European Parliament, had great standing in Cheshire and Wirral. He was foremost in supporting the industry, not least in Ellesmere Port, Wirral, the home of the General Motors Vauxhall Astra production. This plant is important, not only to the economy of north-west England, but to north-east Wales and to Deeside especially. We in Wales do not want the collapse of any work in neighbouring Wirral. There is immense travelling to work from north-east Wales to Wirral and vice versa.
	As shadow Minister for Wales in 1991, I was present alongside the then Secretary of State for Wales—the noble Lord, Lord Hunt—when Toyota UK conducted a ceremony to commemorate the building of an engine plant at Deeside in north-east Wales. The Deeside engine plant was built to time and many hundreds of people now work there. Sadly, however, Toyota UK has declared this year that an £88 million new engine development for Deeside in north-east Wales is to be postponed. Nobody in the company, in the workforce or in Deeside took pleasure in this announcement. It is a body blow to a most successful management team and workforce active in Wales.
	Toyota on Deeside has been superb in training employees, in supporting our county council of Flintshire and in helping dozens of local charities and voluntary organisations. We had hoped to see this £88 million investment go ahead as a reward for what we had delivered in this part of Wales. Wales needs developments such as these. Such developments create skills, and skills are the lifeblood of the Principality.
	I wish the plant well and I hope the Government will respond powerfully to the needs of the industry, not least for this exceptional workplace on the banks of the River Dee in Flintshire.

Lord Bhattacharyya: My Lords, I declare an interest as professor of manufacturing at Warwick University.
	The House has heard a great deal about the current state of the car industry. The issues have been debated thoroughly in the press and here today. I concur with what other noble Lords have said and, in the brief time available, I shall not add to their analysis.
	We have fantastic inward investment companies producing cars in Britain. Toyota, Honda and Nissan are efficient companies that produce superb cars, which are usually designed in their home country. We are lucky to have their manufacturing facilities here and should support them. For these companies, the problem is one of consumer credit. If they cannot access credit, they cannot offer loans to consumers. If the consumers cannot get loans, they will not buy cars. If consumers do not buy cars, factories close or go on short time. We can and should break this logjam, but we must go further.
	For the last 20 years, we have heard about the importance of the service sector, the knowledge-based economy, sunrise industries et cetera. Less has been said about the need for a vibrant manufacturing industry. Much of this is the fault of manufacturing itself. The 1970s and 1980s were not a good advertisement for British manufacturing. Due to lack of investment, poor management and a weak skills base, the British car industry was virtually wiped out by competition from Japan. France and Germany faced the same foreign competition but were more successful in their response. They restructured their industries with state support and developed new products that appealed to consumers, using their local, indigenous companies. We find the same success at home. The aerospace industry received government support through launch aid and other channels. It used the opportunity to develop better products and became a very successful exporter.
	The car industry is facing huge challenges over the next decade, from emissions to safety regulations, and a new generation of high-tech but low-carbon cars will be required. The companies that best meet these global needs will grow as the world emerges from recession. We have a unique tactical opportunity. As our products are high quality, we exported over a million cars in 2007, an increase of more than 7 per cent. In fact, we exported £170 billion-worth of manufactured goods, which was more than half of total British exports. With sterling at current levels, we have the chance to see our exports and European market share grow in the short term. However, for growth to continue beyond the narrow horizons of currency traders, short-term advantage must be supported by long-term investment. Investment for the future requires access to capital today. We need a level playing field with our competitors in Europe and the United States.
	Jaguar Land Rover is the only major car company with an extensive R&D base in Britain. It plans to invest £800 million on a new product and a low-carbon technology programme. However, it may not be able to sustain this investment if its access to capital is choked off by the banking crisis. We must act so that progress in our car industry is not endangered by failed speculation in the financial sector. British-based manufacturers should be offered loan guarantees so that they can secure finance to fund innovation and research. They must then invest here to develop new products with British suppliers, so that we have a vibrant British manufacturing base.
	The Government are saying the right things about easing the credit situation and they are using the right language about the need for a vibrant manufacturing sector. The Government say that help is coming. What I think we all want to know is, "How long?".

Lord Cotter: My Lords, we have had a timely debate today, as there is no question but that the automotive industry is highly important. I pay tribute to the noble Lord, Lord Harrison, for calling this debate and particularly for referring to the importance of the small business sector. Of course the automotive industry is important as an exporter—it accounts for 11 per cent of this country's exports—but it is also important in that we are talking not only about big companies but about the small businesses that feed them. The success or failure of the automotive companies therefore impacts throughout the country. For example, Jaguar Land Rover employs some 15,000 people but reckons to support a further 60,000 jobs through suppliers and dealerships.
	Coincidentally, just this last Saturday I helped to launch a community bus—called Bluey—in my village, Congresbury. That minibus has a number of components, such as a lift for a wheelchair, raised and lowered steps and so on. An automotive vehicle is made up of a number of components and provides jobs elsewhere.
	So what to do? The Government have today announced a further initiative to try to get credit and lending flowing. I hope that this time the banks will respond fully and with openness and that they will take the action that we are looking forward to them taking.
	In this connection, we have all been dismayed by some parts of the financial sector, but Jaguar Land Rover says that its managers will not receive any bonuses this year. I hope that the financial sector will bear that in mind, because the way things have happened there has been outrageous.
	As has been mentioned, there is an important opportunity to encourage environmentally friendly vehicles—good for the environment, of course, but good for us for export. There is a possibility of increasing loans to carmakers, as referred to by the noble Lord, Lord Harrison, from the European Investment Bank, according to the European Union Industry Commissioner. Money should be used from that source and others for investment and restructuring rather than just for keeping the operation going. I hope that we may have a response and clarification from the Minister on that.
	We could put into the melting pot the suggestion that vehicle scrapping should be encouraged to give the opportunity for older vehicles to be put to one side, if you like, and to encourage the take-up of fuel-efficient technologies to renew our fleets.
	Returning to today's Statement, I know that the Finance and Leasing Association has expressed hopes that its sector will get practical encouragement. Has that been taken into account? We all look forward to hearing the Minister's response to our debate today, an important debate at this crucial time for the economy of this country.

Lord De Mauley: My Lords, I congratulate the noble Lord, Lord Harrison, on initiating this debate with such impeccable timing. I also, very belatedly, welcome the Minister to the Dispatch Box, as this is the first time that we have faced each other. We look forward to his skill and experience being addressed to the problems that our country faces in fields such as this.
	The economic troubles that have engulfed us all have recently led Jaguar Land Rover, BMW Oxford, Honda, Aston Martin, Vauxhall and Nissan to announce closures, cuts or other steps in attempt to stave off the worst, with all the redundancies, loss of skills and general pain that that will involve. In October, production of cars fell by as much as a quarter and, of commercial vehicles, by more than 40 per cent—that in a single month.
	The importance of the motor sector is so much greater than that of the manufacturers alone, because it extends to suppliers, to whom several noble Lords have referred, small businesses, in particular, to which the noble Lord, Lord Rowe-Beddoe, and others referred, as well as to the motor finance industry, to which my noble friend Lord James of Blackheath referred. This is not exclusively a credit-crunch phenomenon. Our trade deficit in motors has doubled over a dozen years. Jobs in the industry fell by nearly 40 per cent over 10 years from 1998.
	Last year, frustrated by lack of government support for UK industry, Rolls-Royce located a new testing facility in Germany, rather than Derby. An executive told the FT that the Germans value manufacturing, that there is better productivity and that they have a better education system. The Government have chosen not to be competitive. Britain has caused that industry to export its capabilities.
	The Government's response to current problems has been both to dither—the Secretary of State was said to be considering what to do as long ago as November—and to make life more difficult. The rise in excise duty bands, for example, will affect nearly three-quarters of cars, which will do nothing for demand.
	Ministers often try to paint this party as the one of inaction, but its dithering shows that it is Labour that is truly worthy of that title. What we need now, rather than ineffective VAT cuts or unconditional bail-outs of specific industries, is affordable credit for viable companies—not just small companies, but all companies, including the motor companies.
	The scheme announced on Wednesday extends only to companies with turnover of up to £500 million. I am sure the Minister will be able to tell us how many of the auto manufacturers I mentioned earlier that will help. The noble Lord, Lord Harrison, asked what this week's announcements in the banking industry mean for the auto industry. It has been rumoured that, as we have been demanding from these Benches for two months, the loan guarantee scheme will be extended to larger companies. There is a specific onus on the Royal Bank of Scotland, but as my noble friend Lord Bates said, it is unclear if the whole scheme extends to larger companies, and if it does, whether it will be on a sufficient scale. When we proposed our loan guarantee scheme, the Chancellor said that it would be "an empty promise" and,
	"would not help the British economy or the people of this country".—[Official Report, Commons, 18/12/08; col. 1229.]
	Yet it was strongly supported by the leading trade bodies and commentators. All Ministers could do then was rubbish it, yet here they were on Wednesday proudly announcing a pale imitation of it.
	I join other noble Lords in asking the Minister most importantly if the loan guarantee scheme will be extended to all companies, including Jaguar, Land Rover, Aston Martin and the others, and if so, on what scale. Secondly, while the extension of the special liquidities scheme to consumer car loans is welcome as far as it goes, as the noble Lord, Lord Harrison, asked, will the Government give the non-bank motor finance companies full access to the recently announced liquidity and guarantee schemes? And thirdly, when will the EIB money for R&D, which their German and other competitors have already accessed, be released to our auto companies?

Lord Carter of Barnes: My Lords, I, too, congratulate the noble Lord, Lord Harrison, on securing this debate. I registered 14 specific questions in his informed intervention; I hope, therefore, that he will forgive me if I fail to capture all of them tonight. He can rest assured, as can others, that those that are missed verbally will be returned to in writing.
	I welcome this opportunity to respond to the comments made. I listened to the intensity of the debate and the strength of feeling, as well as the significance of the challenges. The House should be very clear that the Department for Business, Enterprise and Regulatory Reform is extremely focussed on all of these issues, on the importance of this sector and on its reach into the economy, both geographically and into other businesses. I apologise to noble Lords for being a pale imitation of my noble friend Lord Mandelson, of Hartlepool and Foy, who is currently on a trade mission to India. As I listened to this debate, I was rather wishing I had taken up his invitation to join him. However, I know the issues facing the sector are at the forefront of my noble friend's mind and his travel schedule. In addition, while he is in India, he is scheduled to meet many leading business women and men, including Ratan Tata, to discuss how industry, including the automotive industry, is faring during this difficult period.
	With the exception of the interventions from the noble Earl, Lord Mar and Kellie, and the noble Lord, Lord Cotter, most of the comments were around the vicious and unfortunate consequences of the triple jeopardy of the lack of consumer credit—the lack of availability of finance; the negative effect that has on demand—the lack of availability of customers; and the negative effect that has on production and, thereafter, long-term and secure employment.
	The automotive sector is very important to UK manufacturing, as many speakers have made clear, with major inward investment from the global car companies that provided employment for 180,000 people in 2007, along with over 550,000 in the retail business and an estimated further 200,000-plus in the supply chain. It contributes £10 billion of added value to the UK economy, exporting £25 billion worth of vehicles and parts in 2007. The automotive sector was a significant part of the R&D sector, spending over £1.4 billion. Those numbers and many of the comments about how this industry has reformed and put itself into a position of international competitiveness challenge the final comments of the noble Lord about the failure of this Government to create an industry or support it into real health.
	The issues with which we are dealing are the issues of today and of today's markets. They are also the issues of simultaneous structural and cyclical change, which is a feature of many markets with which we are currently dealing. We are fortunate, as the noble Baroness, Lady Wall, made clear, to have six of the top 10 vehicle makers and 19 of the top 20 automotive parts makers with a manufacturing presence in the UK, and—we meet them daily and weekly—companies that wish to stay in the United Kingdom.
	I recognise that the new car registration figures for 2008, which were published by the SMMT on 7 January, were disappointing, and that the trend seems likely to continue for the immediate future. I note the SMMT's anticipation of a drop in sales from approximately 2.4 million cars in 2007 to approximately 1.7 million in 2009, although I think it is generally recognised in the car industry that 2007 was, as it was described to us, a bumper year. The bar may be set higher. Nevertheless, that is a significant drop.
	This is not just a UK problem. While registrations in this country were 11 per cent lower than in 2007, they fell by 18 per cent in the United States of America and by 28 per cent in Spain. The shortfall in customers, in demand and perhaps in consumers' views of the value and type of motor car that they wish to have is changing. It is very real and it is very widespread.
	The declining demand and the reaction to the current economic climate have necessitated action by employers, as many speakers have made clear this evening. We saw this recently in the job losses that were announced at Nissan. Further difficult decisions will be necessary to secure future success. As my noble friend Lord Mandelson said, while current demand for cars is hit by the recession, demand at its levels in 2007 is unlikely to return for some years, if ever; so the industry as a whole will have to adapt, not only in Britain but in Europe and worldwide, to a somewhat more constrained and perhaps differently configured market. That will have implications for the size of the industry and its individual companies and whether they restructure and consolidate.
	This feature of excess capacity is not unique to the automotive sector, as noble Lords know; it is common across many sectors that are facing simultaneous structural and cyclical decline. None the less, this is a sector with a strong future, and here in Britain we are determined to ensure that the car sector remains a permanent and important part of our manufacturing base.
	We have been talking frequently and in much depth to the industry. My noble friend Lord Mandelson and Ian Pearson met the main automotive trade association and representatives of industry in late November to hear at first hand about the particular issues affecting the automotive sector. The key issue raised by the industry in meetings with us was the issue that was raised by most noble Lords this evening: namely, access to credit for companies for investment in new green products and greener manufacturing technologies for their supply chains and for consumers who wish to buy new types of cars.
	The industry provided a variety of suggestions and further information, which we have been considering carefully. What have we done so far? In addition to the measures announced today by my colleague in another place, which are designed to ease liquidity and reduce the downside risk of insurance, and to schemes relating to asset purchases, there will, in answer to questions asked this evening, be greater clarity about how those will operate, provided through an exchange of letters between the Chancellor and the Governor of the Bank of England at the end of this month.
	Moreover, my noble friend Lord Mandelson unveiled £22 billion of funding to unblock the credit markets, which will make it easier not only for small companies but for those with a turnover of up to £500 million to access credit. In answer to the question asked by my noble friend Lord Harrison, we anticipate that the automotive supply chain will benefit in particular from the working capital guarantee scheme. We have successfully lobbied for the European Investment Bank to double to €8 billion the support for investment in greener cars and manufacturing processes, although I register that that is not the €40 billion that the car industry requested, and we are pushing for the bank to speed up its processes.
	We have undertaken a targeted communications campaign. My colleague the Business Minister Ian Pearson wrote to all the major car manufacturers outlining what support may be available to their suppliers. On the difference of scale and scope of smaller firms, we have tried to make it clear that the larger players in industry and trade associations have a real responsibility to ensure a necessary level of knowledge cascading through the industry. As we unveil new schemes we will ensure there are ongoing communications and that point of clarification is continued.
	Despite the scepticism voiced this evening by some noble Lords, we have scaled back the fees on vehicle excise duty and reduced VAT. There has been some criticism of the VAT measure, but a few hundred pounds off the price of car is significant even if the benefit does not apply to export models. As my noble friend Lady Wall knows, we have dedicated £65 million to fund training in the automotive and related sectors, part of the £1 billion allocated to Train to Gain that assists companies identifying appropriate training. I think only 45 of a possible 300 automotive companies have engaged with SEMTA, the sector skills council. If there is more we can do to help in training, design or simple communication—with SEMTA or with SSCs in conjunction—we are willing to do it. We are in constant communication with DIUS to see if there is more that can be done to make these schemes work effectively.
	My noble friend Lord Harrison and others asked for a report on the meeting last Friday convened by European Commissioner Verheugen. My noble friend Lord Mandelson attended the meeting—arranged at his behest—where Governments agreed to co-ordinate support for the industry and seek early engagement with the new US Administration to understand the transfer of their measures to companies working and operating in the European markets. In addition, the Czech presidency agreed to put the issue on the agenda of the spring Competitiveness Council and we made a specific request to accelerate the accessibility and delivery of the already allocated EIB funding, ensuring that all manufacturers were eligible for the funds available. My noble friend also asked about the Government's view of membership of the single currency. The Government's position on that has not changed.
	What further support is there? People say Government should do more. Many of you have said this evening that this is not enough. We understand this argument. Members of this House and others feel strongly about this issue. There has been much discussion about further support. My noble friend Lord Mandelson has made clear that if there is appropriate assistance that we can offer, we will consider it. We have also been urged to take action because other countries have already done so—the argument made here this evening is that companies in the United Kingdom will be at a competitive disadvantage if other companies act first and we are slow to follow. This is something for us to consider and monitor—we are doing both. We also need to be sure that any action we take will work in the United Kingdom and for the United Kingdom, given the structure of the UK's industry in this sector. The circumstances and needs of car manufacturers in other countries are different. It is right that each country responds, albeit in concert, according to what is best for them.
	My noble friend Lord Mandelson is meeting representatives from the industry for a second automotive summit at the end of the month—my noble friend Lady Wall referred to that. I would not go as far as another noble friend in describing being a junior Minister as "dehumanising"—though anyone who transfers from business to a ministerial portfolio recognises some of his analysis. I have learnt during my short time at BERR that it is inadvisable to pre-empt my Secretary of State and suggest what the outcomes from a future meeting he is chairing might be. Equally, on how we would choose to forecast the length of the challenges facing this sector, I have also learnt that forecasting the length of time current conditions will last is best done by forecasters not Ministers—let alone junior ones. You will not be surprised that BERR and Her Majesty's Treasury are as one in recognising the significance of the issues being faced by the automotive sector.
	We understand the urgency, but we will not and, I am afraid, cannot be rushed into taking action that might not be effective. Any assistance needs to be for the future and not for the past. This Government fully recognise the pain the sector is feeling—we are not debating this reality, but rather how to handle it and not make false assumptions of what the industry may look like in the future. We also need to have an eye on what would best help to keep jobs and investment in the United Kingdom, and ensure that we are best placed to win new investment in the future.
	Noble Lords have asked about support for particular companies, but they would not expect me to comment on commercially sensitive discussions. However, to the specific points raised by the noble Lord, Lord Bates, with respect to Nissan, it is fair to say that the 1,200 job losses announced recently are regrettable. We understand that this decision was reached specifically in response to the market. The view of the plant is that it is one of the most efficient in Europe. The regional development agency, One North East, which I am sure the noble Lord knows well, will lead a taskforce to help Nissan and its suppliers deal with the consequences of the decision, and we will help any employee through the suite of schemes available to find alternative opportunities as quickly as possible. As a Government, we remain committed to the Sunderland plant. We contributed £6.2 million to it which did help to secure the model that the noble Lord referred to. We will continue to work with Nissan to secure new investment and, indeed, my noble friend Lord Mandelson plans to visit the plant as soon as possible to discuss plans to bring the manufacture of Nissan's new family of electric vehicles to the site, in line with our commitment to the development of low carbon vehicles as an integral part of the UK automotive industry for the future.
	On the specific point also raised by the noble Lord, Lord Bates, on scrapping to stimulate demand—which I assume is what lies behind the question—we are aware of it and are considering it carefully. Some countries in Europe have looked at this, but as a number of speakers have already indicated, 86 per cent of the cars purchased in the United Kingdom are imports. In truth, scrappage is likely to be of greater benefit to other countries, although we recognise that it would be of some help to the retail sector.
	The Government are looking at the industry as a whole and not just at the automotive sector. Suffice it to say that any government intervention to help the biggest companies would be exceptional and should not get in the way of necessary restructuring. We have a responsibility to the taxpayer and a responsibility, when considering intervention in any market, that we do not harm the fittest when seeking to help the most challenged. Critically, when one is considering sectoral intervention, one needs to be very clear that one is not propping up business models, product lines, capacity and pricing structures from another time.
	I thank my noble friend Lord Harrison and all the other speakers for their contributions to this critical set of issues, and confirm that we will return in writing to any questions that were not answered.

Banking Bill

Bill Main Page
	Copy of the Bill
	Expanatory Notes
	Amendments
	DPCommittee: 1st Report

Committee (3rd Day) (Continued)

Clause 58: Resolution Fund
	Amendment 99
	 Moved by Baroness Noakes
	99: Clause 58, page 28, line 29, leave out subsection (4)

Baroness Noakes: This is a probing amendment that seeks to delete Clause 58(4). The clause deals with resolution fund orders, and we have no fundamental problem with the concept. However, subsection (4) states that the resolution fund,
	"may confer a discretionary function on—
	(a) a Minister of the Crown,(b) the Treasury,(c) the Bank of England, or (d) any other specified person".
	My amendment would delete this to find out what it is really about.
	I cannot see that any other comparable provision has been made in the case of compensation orders or third-party compensation orders, and as usual the Explanatory Notes offer little or nothing about this subsection. When this was debated in another place, the Minister did reasonably well in explaining why the first three paragraphs were dealt with, although he did not explain why similar provisions were not necessary for the other kinds of order. I hope that today the Minister will be able to explain that. However, the Minister in another place ran out of steam when he came to explain why the phrase "any other specified person" was necessary. He started off by saying that it was to cover independent valuers, even though they are already mentioned specifically in the clause. He went on to talk about having an independent auditor of resolution costs, or a monitor of fees, although it is quite unclear why it is necessary to "confer a discretionary function" in order to purchase common or garden services.
	The Minister then took refuge in an argument along these lines: "We don't really know what we might need to do, so we are legislating to give ourselves enough cover to do whatever we come across". That is the old excuse to cover up draft legislation that has not really been thought out in advance. I invite the Minister to place on the record a somewhat more convincing justification for subsection (4), particularly why it is contained in resolution fund orders but not compensation or third-party compensation orders. I beg to move.

Lord Myners: The Minister in the other place might have run out of steam, but quite clearly the noble Baroness has not. Let me summarise briefly the purpose of the bank resolution fund. It is to provide either the failing bank or its shareholders, depending on the nature of the transfer power exercised, with a contingent economic interest in the net proceeds of the resolution. The fund is thus a proxy for compensation.
	A resolution fund order can provide for which parties will be entitled to a share of the proceeds, and how such proceeds will be calculated. Importantly, the proceeds may be calculated net of any resolution costs. Those costs could, for example, include any financial assistance including loans or guarantees provided from, or backed by, public funds or any other administrative expense incurred by the authorities during the course of the resolution. The provision is necessary to ensure the taxpayer receives a suitable return for public funds that have been invested, or put at risk in the bank, during that resolution.
	I understand that the purpose of Amendment 99 is to remove the ability of the Treasury to confer, in a bank resolution fund order, a discretionary function on a Minister, the Treasury, the Bank of England or any other specified person. In summary, I do not agree with the amendment, as it is essential that the Government should have the ability to confer functions on persons to ensure that the appropriate level of compensation is paid to appropriate persons. The bank resolution fund order may specify a role for a number of persons: an independent valuer, an independent auditor of the resolution costs, or a monitor of the fees could, for example, be appointed to perform certain roles. Therefore, instead of listing all persons that may have discretionary functions conferred on them, subsection (4)(d) allows the Treasury to,
	"confer a discretionary function on ... any other specified person",
	in the bank resolution fund order.
	I recognise that this discretion does not appear in the clauses on the compensation schemes or third-party compensation schemes order—the noble Baroness is quite correct in that observation. This is because the bank resolution fund is a new device, specific to this Bill. It is possible, therefore, that we find that various individuals will be required to perform ad hoc functions. Clearly, those cannot all be specified in advance in the Bill. I hope my explanation of the importance of this power reassures the Committee and I therefore beg that this amendment be withdrawn.

Baroness Noakes: I told the Minister at the outset that I was probing the content of subsection (4), not challenging its position within the Bill. I said that I had accepted the case for the resolution fund. However, the Minister gave no new information whatsoever, other than falling back on that tired old reason, "We don't really know, so we are going to legislate for things that we might come across". I shall think about what the Minister has said; it added little to what was said in the other place, and I feel we have taken this no further forward. I beg leave to withdraw.
	Amendment 99 withdrawn.
	Amendment 100
	 Moved by Baroness Noakes
	100: Clause 58, page 28, line 37, leave out subsection (6)

Baroness Noakes: I shall speak also to Amendment 102. The amendments seek to delete subsections (6) and (7) of Clause 58 on a probing basis. The subsections give permissive powers for the order setting up a resolution fund to include provision for a bridge bank or temporary public ownership to require the Bank of England or the Treasury to maximise the proceeds available for distribution subject to various things which are specified. My question is: why is this permissive?
	Is it not the case that, as property is being taken from the shareholders of the bank or the bank itself, the Bank or Treasury must seek to maximise the proceeds, subject to achieving the special resolution objectives? If it could ever be argued that proceeds maximisation was not a proper and essential objective, that makes the draconian powers in the Bill start to verge on the unacceptable. It may also cause conflict with the European Convention on Human Rights.
	Apart from this basic challenge to the underlying premise in the two subsections that proceeds maximisation might not be appropriate, will the Minister explain how an order can both specify the maximisation of proceeds and, as in paragraphs (b) of the subsections, specify its extent? Surely maximisation is a little like pregnancy—one cannot be a little bit pregnant and one cannot maximise a little bit either. I hope the Minister can shed some light on this. I beg to move.

Baroness McIntosh of Hudnall: I should inform the Committee that if this amendment is agreed I cannot call Amendment 101 by reason of pre-emption.

Lord Higgins: The amendment raises a number of interesting issues concerned with a bank in temporary public ownership. We find ourselves in a situation in which it is difficult to realise exactly what is going on because much of it is so radical that we have no previous experience of it. Effectively, we have had a situation where a huge percentage of the UK economy is dependent on financial services for its whole prosperity to a large extent. We are now moving into a situation where the returns from that will clearly be substantially less than they were before.
	Much of the banking sector will be run, effectively, by the Government. That raises the question—I shall be interested in the Minister's response—that what we are really trying to do is to tie them down or even encourage them to maximise the proceeds available for distribution. There was a similar experience in the way in which conditions were imposed on some of the banks which have already been affected. It may be that one really wants to maximise the long-term prospects of the bank concerned, which is not the same as maximising the proceeds for distribution in accordance with the order. Is the Minister proposing at some stage to set out what the serious objectives should be of banks which suddenly find themselves either temporarily or in part under government control?

Lord Myners: I note that the noble Baroness, Lady Noakes, said that this is a probing amendment. There is not a great deal of difference between us on this point and the noble Baroness is right to refer to the European convention.
	Dealing first with the point made by the noble Lord, Lord Higgins, I repeated the Chancellor of the Exchequer's Statement in the other place earlier in which there was a clear statement that the Government's view is that banks are best in the private sector and best run on a commercial basis. We have no interest as a matter of policy in taking control of a bank for even the shortest period. However, the Bill contemplates circumstances in which that may, through force of what has happened, become necessary.
	The noble Lord made an interesting observation about the size of the financial services sector and whether there is a point at which it can be too large for an economy. Some of the work that I am doing in a group chaired by the Chancellor of the Exchequer and Sir Win Bischoff on the financial services market and its future addresses this, among a number of other issues. I believe that those are matters to which this House and the other place may wish to return. We were blessed in the past, because of the prudent and cautious management of our great financial institutions, our banks and insurance companies, to be a major provider of banking and other financial services to the world. That has been a source of strength. At the moment, it is not obviously clear that that remains the case.
	I say to the noble Lord, Lord Higgins, that there is no inconsistency between maximising the value of the business and maximising the proceeds. To put a bank in a safe, secure and commercially strong position is good not only for the customers, but for the owners of the bank before it was put into a resolution regime. I hope that there is no inconsistency here, but the noble Lord is right to draw attention to the inevitable challenges that will arise.
	The purpose of Amendments 100 and 102 would appear to be to remove the power of the Treasury to specify, in a bank resolution fund order, that the Bank of England or the Treasury must ensure that a bridge bank, or a bank in temporary public ownership, must be managed in a manner that maximises the proceeds available for distribution. The bank resolution fund provides those with a residual interest in a resolved bank—either the residual bank in the case of a property transfer, or former shareholders in the case of a share transfer—with a contingent economic interest in the proceeds of resolution. It is surely right that, in some circumstances, a management duty should be placed on either the Bank of England or the Treasury to maximise any proceeds in such a fund. The noble Baroness is right to say that, in the absence of this requirement, the draconian consequences of other measure in the Bill would have to be revisited. It is designed to ensure that the interests of the previous owners of the business or assets are not treated in a capricious or dismissive manner.
	I stress that any management duty is subordinate to the SRR objectives and compliance with the code of practice. I also point out that the proceeds in a bank resolution fund may be calculated net of any public funds or other forms of financial assistance, including the costs of the resolution, as I explained when addressing the previous amendment. This measure was inserted specifically to protect public funds.
	After my explanation of the purpose of this subsection, and because there is a lot of common ground between the position of the noble Baroness and the one that I have explained, I hope that the noble Baroness will withdraw her amendment.

Baroness Noakes: The Minister made an interesting digression on the future nature of the financial services industry in the UK, but he did not answer the points that I made about this amendment, so I will have another go.
	The Minister said that "in some circumstances" there would be a duty to maximise. He went on to say that the subsection was designed to ensure that previous owners are not treated capriciously or dismissively. My point was: why was this only permissive? Why would a resolution fund order not always require the maximisation of proceeds, subject of course—as I accepted—to the special resolution objectives, specified in paragraph (a)? Why would a resolution fund order not require the Bank of England or the Treasury to maximise proceeds? The Minister did not say why that would be the case.

Lord Myners: The provision is designed to ensure that there is no doubt regarding the intention that that obligation should so rest. I ask the noble Baroness: in what circumstances would it not be appropriate to have this provision in the Bill?

Baroness Noakes: I ask the Minister: why would it not be appropriate to have a resolution that the fund "shall" require a bank, in managing a bridge bank and so on, to maximise the proceeds? Why is this permissive? The Minister is telling me that it just allows the bank to maximise proceeds, but I am asking why it is not required to maximise proceeds. That is what has not been answered.

Lord Myners: I believed that I had done that when I said that this was subordinate to the objectives of the Bill. The objectives are overriding in that respect. Subject to achievement of those objectives, including compliance with our obligations under the European directive, this is a requirement—but it is subordinate to the Bill's objectives.

Baroness Noakes: I do not want to prolong this debate unnecessarily, but that is exactly what subsection (6)(a) says, as does subsection (7)(a). The Minister is not saying anything additional. The opening words of both subsections say "may require" maximisation; then,
	"an order must ... subserviate it to pursuit of the special resolution objectives".
	The Minister has not answered that at all. He has merely repeated, as if it is a separate answer, that maximisation is subordinate to the special resolution regime objectives, but it says that right in the middle of the subsection. I am asking why it is permissive.
	When the Minister replies, perhaps he would also answer my other point about what specifying the extent of profit maximisation means in subsection (6)(b) and subsection (7)(b) .

Lord Myners: It is the Government's view, as I said earlier, that the bank resolution fund satisfies the conditions of the ECHR. The proceeds of resolution will be the product of a series of management decisions by a bridge bank's board of directors and the Bank of England as a shareholder—for example, how the business should be managed, when and at what price to sell parts of the bridge bank and so on—or, alternatively, the Treasury if the bank is brought into temporary public ownership in the light of prevailing market conditions. We consider that a duty is necessary in some circumstances in order to provide a specific protection for all the beneficiaries' interests and to help to ensure that the proceeds of resolution will bear a reasonable relation to the value of the property expropriated from the failing bank, subject to the overriding need to act in a manner consistent with the SRR objectives.
	The noble Baroness asks why the wording is permissive, and I fully understand why she should seek an explanation. In certain circumstances, such as the initial transfer to a bridge bank, disposals by the Bank of England days after the initial transfer or where there is no need for duty and no ongoing management decisions, the word "may" would be appropriate. However, I agree with the noble Baroness that in the majority of circumstances one would contemplate that the use of the word "may" was permissive. I should like to take away her comments. I assure her that we will reflect carefully on whether a modification of language would be helpful in addressing the point she has raised. On that basis, I hope she might be kind enough to withdraw her amendment.

Lord Higgins: My noble friend will come back again, but, first, I agree wholeheartedly with the view the Minister expressed after my previous intervention with regard to the Chancellor's statement about wanting to keep it in the private sector and not in the public sector. I am certainly not in favour of not doing that.
	I am worried about the maximising argument. There is clearly a substantial element of timing in it. Just to talk about maximising the proceeds without saying how quickly or over what period is pretty well meaningless. We need to look a little more carefully at that.

Lord Myners: In many years as a pension fund portfolio manager, I struggled with objectives that were expressed in such language as "maximise the return on the portfolio in accordance with an acceptable degree of risk". When one asked for qualification, on the whole the client felt that it was better to leave it in those vague terms. In saying that I will look again at the wording of this part of the clause, I will also take account of the point made by the noble Lord, Lord Higgins.

Baroness Noakes: We have spent long enough on the fun of this amendment. I beg leave to withdraw.
	Amendment 100 withdrawn.
	Amendment 101
	 Moved by Baroness Noakes
	101: Clause 58, page 28, line 40, leave out "subserviate it to" and insert "subordinate it to the"

Baroness Noakes: This amendment is even more fun. Amendments 101 and 103 replace the words "subserviate it to" with "subordinate it to the" on the two occasions that they appear in Clause 58. My question is: is "subserviate" a word? My spellchecker does not think so and the word appears in virtually no dictionaries, although we found it in the Oxford English Dictionary, which cites only two known uses of the word. We may conclude that it just about qualifies as part of the English language. On the other hand, it is most definitely not a word used by lawyers apart, presumably, from the parliamentary draftsmen on this Bill. From our research the word has never been used before in an English statute.
	In another place the Minister first dismissed this as "stylistic", which my honourable friend took as a compliment, but agreed to consult officials. Perhaps officials really did persuade the Minister that mucking around with the English language and using words that no one has heard of is a good thing to do in legislation. In any event, I hope the Minister will have a rather better answer than we received in another place. I beg to move.

Lord Myners: We move around in this debate from issues of extraordinary technical complexity to lighter moments. I also asked my officials why this word had been chosen. They also referred to the dictionary. They found two known uses in quotations, one being from Winston Churchill. I suggest to the noble Baroness and her colleagues on the other side of the Committee that the fact that the other place had difficulty with this word should not mean that we should indicate that we are in any way uneasy—or lacking in familiarity—with it. I believe the dictionary definition is very clear. It is clear that it is almost identical to "subordinate".
	I say to the noble Baroness that, as noble Lords know, I am new to this process. I understand that, at some stage, we begin to focus on narrowing down the areas where there are differences on the Bill between the parties in the House. It is probable, given my poor handling of the Bill to date, that I am likely to have to make concessions. If the noble Baroness indicated to me now that this was one of the more important concessions that she would expect me to make, rest assured that I would respond positively to that. I look forward to an indication in due course. If this really is the most important clause in the Bill, I will look kindly on responding in a helpful way on Report. Pro tem it would be appreciated if the noble Baroness withdrew the amendment.

Baroness Noakes: I am disappointed with the way in which the Minister has handled this. I raised a serious issue which arises from the scrutiny role of the House of Lords. This word has never been used in statute. That is the important thing. That point was not made when the issue was debated in another place. While it is in the Oxford English Dictionary, I think that is the only dictionary in which the Minister will find it. It is not a word that lawyers recognise, nor would be expected to recognise. I hope that the Minister will take it away, discuss it with his officials and bring back an amendment on Report because that would be the correct thing for him to do.

Lord Myners: I am happy to concede the point.

Baroness Noakes: Does that mean I can move the amendment formally? However, I am happy to wait for Report. I beg leave to withdraw the amendment.
	Amendment 101 withdrawn.
	Amendments 102 and 103 not moved.
	Clause 58 agreed.
	Clause 59 agreed.
	Clause 60 : Third party compensation: mandatory provision
	Amendment 104
	 Moved by Baroness Noakes
	104: Clause 60, page 29, line 18, leave out "may" and insert "shall"

Baroness Noakes: I temporarily lost my notes. I was about to move the next amendment, which might have confused the Minister. Amendment 104 seeks to change "may" to "shall" in Clause 60(1), which deals with third party compensation arrangements in cases of partial transfers. This clause allows the Treasury to make an order which will give effect to the "no creditor worse off" safeguard promised by the November consultation document. The industry has welcomed this and we support it, though as I mentioned in connection with the set-off and netting issue, the lack of certainty about outcome of the processes set out in the draft order—and, indeed, in the clause—means that it adds nothing to the legal certainty that is required for set-off and netting arrangements.
	We cannot understand why the Treasury should have the option to issue the "no creditor worse off" order. It promised it as a safeguard and should be required to deliver it. Anything else would create uncertainty, which we have already debated in the context of partial transfers. I hope that the Minister can agree to this because it is a straightforward case of making an order and is not subject to the more complex provisions that we came across in the context of whether we should have "may" or "shall" in Clause 48. Clause 60 is very much more straightforward and I hope that the Government agree that this is a no-brainer. I beg to move.

Viscount Eccles: I wish to speak to Amendment 104A and in support of Amendment 104. I seek to introduce another piece of greater certainty into the clause by leaving out,
	"in particular, have regard to the desirability of ensuring",
	so that the clause reads,
	"In making regulations the Treasury shall ensure that".
	We have discussed "have regard to", but this set of words also includes "desirability" so we have two uncertainties. The language is another example of "now you see it, now you don't"; that is to say, there is an intent but how far will the intent be translated into what happens? This is an area of great sensitivity and there is a need to achieve equity. I suggest that certainty is needed.

Lord Davies of Oldham: I am grateful to noble Lords who have spoken to their amendments. The Government's current plan is to make regulations under Clause 60 to provide for the "no creditor worse off" safeguard. I hope that the consultation document on safeguards, which included a draft of the regulations for the "no creditor worse off" safeguard, makes this clear.
	The Government's continuing work with the expert liaison group should provide further evidence of the sincerity of the Government's intention to provide standing secondary legislation under this enabling power. Our intention is to ensure that these safeguards are in place at the same time that the powers to make partial transfers come into force.
	However, it does not necessarily follow that the Treasury should be required always to maintain secondary legislation under Clause 60 or any of the other powers that enable legislation to be made in relation to partial transfers. The Government should have the flexibility to develop and update the content of partial transfer safeguards should they, or stakeholders, believe that there are better ways to protect certain interests.
	For example, if the Government and the market agreed that compensation to pre-transfer creditors under Clause 60 was redundant because a better way to protect this category of person could be developed, the Government should be allowed to revoke the regulations that had been made under Clause 60; but the amendment proposed by the noble Baroness would not allow this. However, I emphasise the Government's commitment to making this secondary legislation and providing appropriate protection to creditors following a partial transfer. I hope that the noble Baroness respects the Government's commitment and sincerity in these terms and feels able to withdraw the amendment.
	On Amendment 104A, proposed by the noble Viscount, Lord Eccles, I will set out in a bit more detail how the safeguard will work. In some circumstances, in a partial transfer, the payment received by creditors of the residual bank after the winding up of the residual bank may be less than they would have received had the whole of the bank gone into an insolvency procedure.
	In these situations, this clause provides a compensation mechanism. This compensation would be calculated by an independent valuer and would involve an estimation of what realisations would have been made had the whole of the bank been wound up. I believe that the purpose of the noble Viscount's amendment is to require that the Treasury must ensure that pre-transfer creditors do not receive less favourable treatment than they would have received had the bank been wound up immediately before transfer.
	As drafted, the clause refers to having,
	"regard to the desirability of ensuring",
	that this is the case. The clause has been drafted with care and with purpose in this respect. The regulations made under this clause will put in place a procedure that includes a calculation of a hypothetical insolvency of the failing bank.
	Given that this calculation necessarily requires an assessment of a situation which has not in fact occurred, it would not be appropriate for the Government to commit in statute that this procedure will "ensure"—which is what is envisaged in the amendment—that creditors are no worse off than if the bank had been wound up. It is not possible to know definitively what this would mean. Therefore, the language has been drafted in less concrete terms than those suggested by the noble Viscount, Lord Eccles, and appropriately so. We are dealing with areas of some uncertainty.
	I assure the noble Viscount that the Government are committed to providing adequate compensation to creditors to ensure that this is an effective safeguard that provides confidence to creditors dealing with banks. I believe that the Government's provision under this clause and the draft regulations that we are consulting on provide this confidence. I hope that the noble Viscount will consider that those are sufficient reassurances and will not press his amendment.

Baroness Noakes: We discover our old friend flexibility has come back again; the flexibility not to have the third-party compensation arrangements that the Government have promised. They have said that they might find some other way, but they would then need some statutory cover that would give them the opportunity to remove Clause 60. Putting that on one side, even if we do get the secondary legislation, the issues raised by my noble friend suggest that the third-party compensation arrangements may well have been oversold, because the Government are saying that creditors may well not be put in a no-worse-off position. That is another bit of spin in the Bill.
	I do not think that I shall pursue this matter again—certainly for this evening. I beg leave to withdraw the amendment.
	Amendment 104 withdrawn.
	Amendment 104A not moved.
	Clause 60 agreed.
	Clause 61 : Sources of compensation
	Amendment 105
	 Moved by Baroness Noakes
	105: Clause 61, page 30, line 30, leave out paragraph (c)

Baroness Noakes: I am moving the amendment on a probing basis. Clause 61 deals with the sources of compensation for the various compensation orders, and lists in subsection (2) the Treasury, the Financial Services Compensation Scheme and then "any other specified person". It is this latter category that I am seeking to probe with my amendment. Will the Minister say who these other persons might be? The clause is drawn very widely. Will he say whether there are any limits on the categories of person who may be required to cough up for a compensation order?
	In addition, Clause 5, which requires a code of practice, does not extend to compensation orders, and in view of the breadth of Clause 61(2), it seems odd that the code of practice will not cover this issue. I invite the Minister to reflect upon whether the code should in fact be the place where this is spelt out in more detail, so that people understand how this is expected to work in practice. That is what I understood the code of practice to be aimed at. I beg to move.

Lord Davies of Oldham: The Government's response to this amendment is fairly straightforward, and, I hope, constructive. I hope that the noble Baroness will feel that she has received a proper reply. Clause 61 sets out the sources of any compensation and subsection (2)(c) refers to "any other specified person". The noble Baroness has indicated that that gives rise to suspicion. I hope that we have sufficiently identified the Government's actions in these terms to be beyond suspicion. Nevertheless, I recognise the noble Baroness's obvious right to probe us on this.
	Let me provide an example of who are meant by "any other specified person". I have not got a little list, a big list or even a microscopic list. I have a category, and if I can I shall provide more, or an illustration of the nature of the situation which has obliged us to set out the Bill in those terms. Where a price agreed between a private sector purchaser and the Bank of England was felt to reflect the market valuation of the failing bank at the time of the transfer, the Treasury could specify in the compensation scheme order that the price agreed was deemed to be the compensation to be paid.
	The provision would facilitate this by making it clear that the compensation payment—in this case, the price paid by the purchaser—may originate from sources other than the norm—either the Financial Services Compensation Scheme or the Treasury. All that we seek to do in this respect is identify that the norm is envisaged as certainly being those two, but it is possible that an agreement could be struck by the Bank of England which does not involve those. We are seeking to make provision for that eventuality in circumstances where, I hasten to add, yet again we are not in a position to envisage every possible significant development with regard to these negotiations and developments. However, we have to construct the legislation in such a way that it does not inhibit or prohibit action which might be very much in the interests of the parties concerned because it is drafted too rigidly. That is why the subsection is set out in those terms.

Baroness Noakes: I thank the Minister for that reply and for the one example, which at first sight certainly seemed an entirely plausible explanation. I suppose that my concern relates to the question "What else?", which is why I invited the Minister to consider whether the code of practice should outline the way in which compensation orders might be used in practice. That is what the code of practice is for.

Lord Davies of Oldham: I shall certainly take that point on board.

Baroness Noakes: I am grateful to the Minister for that and beg leave to withdraw the amendment.
	Amendment 105 withdrawn.
	Clause 61 agreed.
	Clause 62 agreed.
	Amendment 105A
	 Moved by Lord Whitty
	105A: After Clause 62, insert the following new Clause—
	"Competition and consumer issues
	(1) This section applies when evocation of any of the stabilisation options under sections 11, 12 or 13 results in the resultant company being the largest provider in any of the markets defined in subsection (6) and accounting for 25% or more of that market; for the purposes of this section such a provider is described as "resultant dominant company".
	(2) Where subsection (1) applies and continues to apply for eighteen months from the implementation of that process the relevant market shall be referred automatically to the Office of Fair Trading for it to undertake an investigation as to whether effective competition operates in that market and if not whether the market operates in the consumer and public interest.
	(3) Where subsection (1) applies the resultant dominant company shall be required to take immediate steps to establish within its structure—
	(a) a consumer panel, and
	(b) a small business panel.
	The Board of the resultant dominant company shall be required to consult these panels on overall policy and significant changes to that policy.
	(4) Appointments to panels established under subsection (3) shall be made in consultation with organisations representing the interests of consumers and small businesses respectively, and where the resultant dominant company has been created under sections 12 or 13 such appointments shall be made by the Secretary of State according to the provisions for public appointments.
	(5) The Financial Services Agency may as appropriate make regulations to give effect to subsections (3) and (4).
	(6) The markets referred to in subsection (1) shall be in—
	(a) retail banking services for individuals;
	(b) mortgage provision for domestic housing;
	(c) advancing of credit for small businesses;
	(d) banking services for small businesses;
	(e) mortgage provision for small businesses.
	(7) The Secretary of State or the Financial Services Authority shall have the power to propose variation of the markets defined in subsection (6) subject to the agreement of both Houses of Parliament."

Lord Whitty: Although this amendment appears to be somewhat prescriptive, it is, I assure my noble friend, essentially probing. There may be arguments as to whether it is in the right part of the Bill, but it seems to me that it is because we need to mention the impact of all this on consumers and competition, and we need to mention it before we come to the next part of the Bill, entitled "Incidental functions". This is not incidental; it is a central consequence of the measures that would follow the use of any of the three special provisions outlined in the Bill.
	I am strongly in favour of the majority of the provisions in the Bill and indeed of the announcements that my noble friends Lord Mandelson and the Minister have made in relation to loans to business. However, whichever way we look at it, it is inevitable that these prospective interventions will cause major changes in the structure of one of our most important industries. Essentially, it is an industry on which the rest of the economy is dependent. It is also a service or industry on which ordinary people and small businesses depend very heavily. If we use the part-nationalisation or temporary nationalisation provisions, we create new state-owned companies. If we use the provisions for transfer into merged companies, the state is intervening to create a large company. If we use the bridge proceedings—at least, for a time—again, the Bank of England is using its leverage to create a substantially large banking company.
	All these changes occur in an industry in which, so far as concerns most people who seek deposit facilities, mortgages, loans and other credit facilities, the range of options is already relatively small. It is already an oligopolistic industry, and that is why many of the regulations administered by the Bank of England and the FSA exist.
	I declare my interest as chair of Consumer Focus. Looking after the interests of those who rely every day on retail banking, mortgages and credit from the banking system for their livelihoods and their very quality of life must be an essential part of the Bill. Objective 3 refers to the interests of depositors. However, the issue goes wider than that because we all depend on the banking system to work efficiently.
	The service provided by the banking system benefits from competition, but the interventions under each of these three headings will almost inevitably restrict competition, at least temporarily. When we came to my noble friend Lord Mandelson's first debate in this House, on the issue of Lloyds/HBOS, I asked him whether there was an opportunity to revisit what effectively was the exemption under that order for the merger. We were creating a retail banker which has 30 per cent of the market and a mortgage provider which has 30 per cent of the market. In any other circumstances, there would have been a reference to the competition authorities to see whether this was operating in the interests of the consumer.
	This amendment says that, where any of the interventions creates the largest company in the particular sub-market which I suggest definitions for and has more than 25 per cent of the market, there is an a priori reason for referring that to the competition authorities within 18 months—one may argue about the timescale—if that structure still exists. The consumers, both business and individual, require some assurance that a reference will at some point occur to the competition authorities.
	I also suggest that, because we are creating either a state bank or a merger sponsored by the state, some institutional provisions should be provided. The suggestion here is that if such a dominant bank were created in any of the markets I identify then that bank—which in many cases will be a state or part-state bank—should create within its structure a small business panel and a consumer panel. That may not be enough to create an institutional form but it recognises that a banking system and those who control, manage and direct banks are in a relationship not only with the whole economy but with millions of individuals. Their interests need to be reflected within that structure.
	In earlier debates the Government by and large rejected the view that, although banking in some sense is special, the directors appointed by the state—I do not want to reopen this argument—or the Bank of England are no different from any other directors. We are not using the public interest at the director level to look after the wider interests of the consumer and of the taxpayer; I am suggesting we need some other measure so to do. The suggestion here is that we should establish two panels in consultation with those who represent small business and consumers. Those are the two measures: an automatic reference, or one that is more automatic after a certain time, to the competition authorities; and the creation of some structure which represents the key dependence of the banking system on small business and individual consumers.
	I do not expect the Government to accept this tonight—maybe they will later on; I would be delighted if they did—but at least the issues which underline this amendment need to be addressed by the Government in the interests of wider society and the wider economy. I beg to move.

Lord Northbrook: While in theory I am sympathetic to the amendment of the noble Lord, Lord Whitty, and I understand his genuine fears about competition, in the circumstances of this Bill we are in emergency measures and, with the greatest respect, his amendment would create more uncertainty in an already difficult situation.

Lord Newby: I am grateful to the noble Lord, Lord Whitty, for bringing forward this amendment. I have a lot of sympathy for both its arms. I have a question for the Government, given that I think these are sensible ideas, particularly in respect of the consumer panel and the small business panel.
	Would the Government consider suggesting to the Lloyds Banking Group and RBS that they now establish such panels, because the Lloyds Banking Group has a very large share of the market and RBS is a largely nationalised bank? For both banks there are real questions, among their consumers of ordinary retail deposits and their small business consumers, about the way they are behaving or have behaved. This would be a good use of government influence on those two banks, which are already de facto partly nationalised.

Baroness Noakes: We have considerable sympathy with the issues that the noble Lord, Lord Whitty, has raised. I think that we all felt a touch uncomfortable at the market position created by the Lloyds/HBOS merger and the way in which that was dealt with. However, after such a position has been created, I have a problem with instigating what can be a lengthy and costly process both for the Office of Fair Trading and for the bank concerned if there is no evidence of abuse of dominant market position. If there is no abuse, I rather hesitate to impose an investigation on everybody and I am uncomfortable with trying to impose panels on to organisations that we hope will be operating on commercial lines as far as possible. Panels may be fine for organisations such as the FSA and other public bodies, but I think that they are less obviously beneficial for companies that are operating in markets and to commercial remits.

Lord Myners: I welcome my noble friend's support for the central thrust of the Bill and I note the measured and constructive way in which he proposes the amendment. To the extent that we will ever have to use the special resolution powers that the Bill creates, I sincerely hope that it will be in the case of the smallest deposit-taking institutions rather than the major banks. It would be wrong to assume that, because of the circumstances in which we now find ourselves, this legislation is framed solely to meet the needs of very large banks. That is where the competition issue arises, but it would be wrong to assume that every use of the special resolution powers would raise the type of competition issue to which my noble friend referred in his comments in support of this amendment. That leads me to find myself in a rather similar position to that of the noble Lord, Lord Northbrook, which is to say that, where special resolution is under contemplation for a very large institution, this issue of competition is just one of many factors that would have a bearing.
	The amendment is designed to make provision for a situation where the exercise of one of the stabilisation options results in a company with a dominant market share. In such circumstances, as defined in the amendment, two provisions would come into force. The first provision is that, if the company is still a dominant market player, as defined in the proposed new clause, after 18 months, the case must be referred to the Office of Fair Trading.
	It is important to note that the OFT and the Competition Commission already have functions that can address competition issues. For example, they have an active role under Part 4 of the Enterprise Act 2002 in investigating markets that do not appear to be meeting the needs of consumers. This can have a variety of outcomes, including the OFT making recommendations to the Government or referring the market to the Competition Commission for a more detailed investigation. Therefore, we can be satisfied that the competition authorities will continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy.
	An example of another safeguard can be provided. Part 6 of the Enterprise Act provides cartel offences, such as those relating to price fixing. Further to this, a private sector purchase, a bridge bank and a bank in temporary public ownership will continue to be regulated by the FSA in the same manner as other financial service providers are. For this reason, while respecting my noble friend's intention, I do not believe that it is necessary for the Bill to include provisions on referrals to the OFT.
	Furthermore, I am not convinced that this Bill is the appropriate place to provide legislation on such matters. It is for the Competition Act, the Enterprise Act and related legislation to cover, as they already do, the remit and powers of the OFT and the Competition Commission. On that basis, I do not, with all respect to my noble friend, agree with the first part of the amendment.
	I turn to the second part of the amendment, which would require certain panels to be set up to advise the dominant company following the exercise of a stabilisation power on matters important to consumers and small business. First, I agree with the broad thrust behind that part of the amendment. It is of course right that the policies of private sector companies should be informed by the needs of their consumers, including small businesses and individuals. However, I do not believe—here I find myself on common ground with the noble Baroness, Lady Noakes—that it is the place of legislation to enforce on companies a structure such as the panels proposed in the amendment.
	The noble Lord, Lord Newby, suggested that we should draw the comments of my noble friend Lord Whitty and the thrust of the amendment to the attention of the chairmen of Lloyds Banking Group and the Royal Bank of Scotland. That I will definitely do, and I will copy my letter to my noble friend and to the noble Lord, Lord Newby, and ensure that they also have copies of their reply. I absolutely find myself at one with the central thrust of the argument that successful organisations are aware of and responsive to the needs of their customers. One could argue that some of the failings that our banks have experienced have been because they became too distant and remote from their customers and too engaged in financial alchemy, as opposed to meeting consumer needs.
	I ask my noble friend to withdraw his amendment. I hope that he will take considerable comfort from the views expressed on all sides of the Committee about the importance of the consumer. I also pay great tribute to his great commitment to consumers through his energetic work as chair of Consumer Focus.

Lord Whitty: I thank those who have at least expressed sympathy for what lies behind the amendments. In particular, I thank my noble friend for his commitment on Lloyds/HBOS and RBS. That is very welcome and I look forward to their response. Were the Government to commit themselves to using informal measures to ensure that dominant companies created as a result of one form or other of government intervention take account of the views of individual consumers and small businesses, we would not need to legislate. I remain slightly sceptical that they will in all circumstances so do, but I look forward to the response to my noble friend's letter to the chairmen of the two banks concerned. Therefore, I will not press that aspect tonight.
	On competition, this does not affect where we are rescuing small depositors; it exists only when, fairly dramatically, we are directly or indirectly creating a dominant company. In those circumstances, given the importance of the banking sector, and the fact that the state is forcing that restructuring, there are special reasons for asking the OFT to have a look at it. Eighteen months may be too soon in an emergency; perhaps we need to give it a little more time. Nevertheless, I say to the Government that it is dangerous to have lifted the normal provisions of competition assessment and therefore to allow something through that would at least have had a cursory OFT inspection. The OFT could look at it in a preliminary way to decide whether it refers it to the Government or to the Competition Commission or takes some further steps.

Lord Forsyth of Drumlean: Wearing his consumer hat, and given his obvious interest in the subject, has the noble Lord looked at this from the other point of view? That is where government intervention in this field disadvantages the consumer. The examples that he cited of RBS and Lloyds/HBOS are good ones, where the Government setting a 12 per cent rate on preference shares has meant that consumers have to pay more for their loans or, indeed, their loans may not be available because the banks clearly want to pay back the preference shares. That is an example where government intervention is acting against consumers' immediate interest. Has the noble Lord thought about that?

Lord Whitty: As a result of government interventions, there are clearly some disadvantages to certain groups of consumers, to use "consumers" in the widest sense. But there is the bigger picture, as the Minister has said. It was essential to rescue the banks and to intervene in order to restore a degree of confidence in the banking system. That, frankly, is the big picture for consumers at this point. The way the Government have done that can be argued about in terms of the effect on some consumers. This is why I started by saying I support the main thrust of this Bill. There are some consequences to consumers by the restriction of competition and I would not want the Government to lose the ability, or indeed the necessity, of having another look at it. This is, after all, the structure of the industry that they have created.

Lord Myners: I am sure the noble Lord, Lord Forsyth of Drumlean, has baited me into responding on this point, standing, as he is, waist deep in his waders, seeing a big, fat fish coming towards him. The noble Lord knows that there is a very significant difference between the rate of interest on a deposit and the cost of risk capital. In the circumstances prevailing in the middle of October, we were advised by our own financial advisors at the Treasury that 12 per cent was an appropriate rate for the instrument that was being offered to and accepted by the banks. Clearly, that was the view of their directors and their financial advisors as well. One major bank chose not to use that route to securing more capital. I salute them for that because our interest was in ensuring that the banks were appropriately capitalised, rather than where they drew the capital from. That bank certainly had to pay more than 12 per cent when you take into account the dilution and the warrants and new instruments they created which gave them short capital.
	We could debate this issue for some time. The noble Lord, Lord Forsyth, is no doubt aware that we announced this morning that the Royal Bank of Scotland is converting its preference shares into ordinary shares. I indicated earlier that should the Lloyds Banking Group approach us with a request, we would look at that, as long as it represented good value to the taxpayer, because that is the other side of this transaction.

Lord Whitty: In the light of that, I will withdraw the amendment.
	Amendment 105A withdrawn.
	House resumed.

House adjourned at 9.58 pm.